Correlation Between Monster Beverage and Taiwan Semiconductor

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

Diversification Opportunities for Monster Beverage and Taiwan Semiconductor

-0.79

Correlation Coefficient

Monster Beverage  Taiwan Semiconductor

Pay attention - limited upside

The 3 months correlation between Monster and Taiwan is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor 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 Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Monster Beverage i.e., Monster Beverage and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Monster Beverage and Taiwan Semiconductor

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 0.74 times more return on investment than Taiwan Semiconductor. However, Monster Beverage Corp is 1.35 times less risky than Taiwan Semiconductor. It trades about 0.08 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.1 per unit of risk. If you would invest  109,089  in Monster Beverage Corp on December 31, 2024 and sell it today you would earn a total of  9,911  from holding Monster Beverage Corp or generate 9.09% return on investment over 90 days.

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

Monster Beverage Corp  vs.  Taiwan Semiconductor Manufactu

Monster Beverage Corp

Risk-Adjusted Performance

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 May 2025.

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Monster Beverage and Taiwan Semiconductor

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

The idea behind Monster Beverage Corp and Taiwan Semiconductor Manufacturing 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.