Correlation Between Monster Beverage and Rocky Mountain

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

Diversification Opportunities for Monster Beverage and Rocky Mountain

0.04

Correlation Coefficient

Monster Beverage  Rocky Mountain

Significant diversification

The 3 months correlation between Monster and Rocky is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Rocky Mountain High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain High 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 Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain High has no effect on the direction of Monster Beverage i.e., Monster Beverage and Rocky Mountain go up and down completely randomly.

Pair Corralation between Monster Beverage and Rocky Mountain

Given the investment horizon of 90 days Monster Beverage Corp is expected to generate 0.25 times more return on investment than Rocky Mountain. However, Monster Beverage Corp is 4.01 times less risky than Rocky Mountain. It trades about 0.07 of its potential returns per unit of risk. Rocky Mountain High is currently generating about -0.01 per unit of risk. If you would invest  5,231  in Monster Beverage Corp on December 2, 2024 and sell it today you would earn a total of  234.00  from holding Monster Beverage Corp or generate 4.47% 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.  Rocky Mountain High

Monster Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monster Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Rocky Mountain High

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Rocky Mountain sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and Rocky Mountain

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

The idea behind Monster Beverage Corp and Rocky Mountain High 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.