Correlation Between Monster Beverage and Schlumberger

Can any of the company-specific risk be diversified away by investing in both Monster Beverage and Schlumberger 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 Schlumberger 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 Schlumberger Limited, you can compare the effects of market volatilities on Monster Beverage and Schlumberger 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 Schlumberger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and Schlumberger.

Diversification Opportunities for Monster Beverage and Schlumberger

0.28

Correlation Coefficient

Monster Beverage  Schlumberger

Modest diversification

The 3 months correlation between Monster and Schlumberger is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited 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 Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Monster Beverage i.e., Monster Beverage and Schlumberger go up and down completely randomly.

Pair Corralation between Monster Beverage and Schlumberger

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 0.58 times more return on investment than Schlumberger. However, Monster Beverage Corp is 1.72 times less risky than Schlumberger. It trades about 0.0 of its potential returns per unit of risk. Schlumberger Limited is currently generating about -0.14 per unit of risk. If you would invest  109,137  in Monster Beverage Corp on October 7, 2024 and sell it today you would lose (48.00) from holding Monster Beverage Corp or give up 0.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.5%
Values	Daily Returns

Monster Beverage Corp  vs.  Schlumberger Limited

Monster Beverage Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Monster Beverage showed solid returns over the last few months and may actually be approaching a breakup point.

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Monster Beverage and Schlumberger

The main advantage of trading using opposite Monster Beverage and Schlumberger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, Schlumberger 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 Schlumberger will offset losses from the drop in Schlumberger's long position.

The idea behind Monster Beverage Corp and Schlumberger Limited 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.