Correlation Between Monster Beverage and Sensient Technologies

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

Diversification Opportunities for Monster Beverage and Sensient Technologies

0.72

Correlation Coefficient

Monster Beverage  Sensient Technologies

Poor diversification

The 3 months correlation between Monster and Sensient is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies 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 Sensient Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sensient Technologies has no effect on the direction of Monster Beverage i.e., Monster Beverage and Sensient Technologies go up and down completely randomly.

Pair Corralation between Monster Beverage and Sensient Technologies

Given the investment horizon of 90 days Monster Beverage is expected to generate 3.97 times less return on investment than Sensient Technologies. But when comparing it to its historical volatility, Monster Beverage Corp is 1.16 times less risky than Sensient Technologies. It trades about 0.0 of its potential returns per unit of risk. Sensient Technologies is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,519  in Sensient Technologies on October 24, 2024 and sell it today you would earn a total of  3.00  from holding Sensient Technologies or generate 0.04% return on investment over 90 days.

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

Monster Beverage Corp  vs.  Sensient Technologies

Monster Beverage Corp

Risk-Adjusted Performance

0 of 100

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Sensient Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Monster Beverage and Sensient Technologies

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

The idea behind Monster Beverage Corp and Sensient Technologies 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.