Correlation Between Monster Beverage and Coca Cola

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

Diversification Opportunities for Monster Beverage and Coca Cola

MonsterCocaDiversified AwayMonsterCocaDiversified Away100%
-0.41
  Correlation Coefficient

Very good diversification

The 3 months correlation between Monster and Coca is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola 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 Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola has no effect on the direction of Monster Beverage i.e., Monster Beverage and Coca Cola go up and down completely randomly.

Pair Corralation between Monster Beverage and Coca Cola

Assuming the 90 days horizon Monster Beverage is expected to generate 3.81 times less return on investment than Coca Cola. In addition to that, Monster Beverage is 1.79 times more volatile than The Coca Cola. It trades about 0.01 of its total potential returns per unit of risk. The Coca Cola is currently generating about 0.05 per unit of volatility. If you would invest  5,257  in The Coca Cola on November 19, 2024 and sell it today you would earn a total of  1,323  from holding The Coca Cola or generate 25.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Monster Beverage Corp  vs.  The Coca Cola

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -50510
JavaScript chart by amCharts 3.21.15MOB CCC3
       Timeline  
Monster Beverage Corp 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Monster Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb454647484950515253
Coca Cola 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Coca Cola reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb585960616263646566

Monster Beverage and Coca Cola Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.05-4.53-3.01-1.490.02531.523.044.556.07 0.050.100.150.20
JavaScript chart by amCharts 3.21.15MOB CCC3
       Returns  

Pair Trading with Monster Beverage and Coca Cola

The main advantage of trading using opposite Monster Beverage and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, Coca Cola 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 Coca Cola will offset losses from the drop in Coca Cola's long position.
The idea behind Monster Beverage Corp and The Coca Cola 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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