Correlation Between Monster Beverage and Petrleo Brasileiro

Can any of the company-specific risk be diversified away by investing in both Monster Beverage and Petrleo Brasileiro at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Monster Beverage and Petrleo Brasileiro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Monster Beverage Corp and Petrleo Brasileiro SA, you can compare the effects of market volatilities on Monster Beverage and Petrleo Brasileiro and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Monster Beverage with a short position of Petrleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and Petrleo Brasileiro.

Diversification Opportunities for Monster Beverage and Petrleo Brasileiro

0.05

Correlation Coefficient

Monster Beverage  Petrleo Brasileiro

Significant diversification

The 3 months correlation between Monster and Petrleo is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and Monster Beverage is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Monster Beverage Corp are associated (or correlated) with Petrleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrleo Brasileiro has no effect on the direction of Monster Beverage i.e., Monster Beverage and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between Monster Beverage and Petrleo Brasileiro

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 1.06 times more return on investment than Petrleo Brasileiro. However, Monster Beverage is 1.06 times more volatile than Petrleo Brasileiro SA. It trades about 0.08 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.02 per unit of risk. If you would invest  97,500  in Monster Beverage Corp on September 17, 2024 and sell it today you would earn a total of  8,000  from holding Monster Beverage Corp or generate 8.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Monster Beverage Corp  vs.  Petrleo Brasileiro SA

Monster Beverage Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Petrleo Brasileiro

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Monster Beverage and Petrleo Brasileiro

The main advantage of trading using opposite Monster Beverage and Petrleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, Petrleo Brasileiro can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Petrleo Brasileiro will offset losses from the drop in Petrleo Brasileiro's long position.

The idea behind Monster Beverage Corp and Petrleo Brasileiro SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.