Correlation Between Monster Beverage and US Bancorp

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

Diversification Opportunities for Monster Beverage and US Bancorp

0.75

Correlation Coefficient

Monster Beverage  US Bancorp

Poor diversification

The 3 months correlation between Monster and USB is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Monster Beverage i.e., Monster Beverage and US Bancorp go up and down completely randomly.

Pair Corralation between Monster Beverage and US Bancorp

Assuming the 90 days trading horizon Monster Beverage Corp is expected to under-perform the US Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage Corp is 1.04 times less risky than US Bancorp. The stock trades about -0.22 of its potential returns per unit of risk. The US Bancorp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  101,550  in US Bancorp on September 25, 2024 and sell it today you would lose (1,100) from holding US Bancorp or give up 1.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Monster Beverage Corp  vs.  US Bancorp

Monster Beverage Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

US Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and US Bancorp

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

The idea behind Monster Beverage Corp and US Bancorp 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 Commodity Directory module to find actively traded commodities issued by global exchanges.