Correlation Between Monster Beverage and Inspire Medical

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

Diversification Opportunities for Monster Beverage and Inspire Medical

0.01

Correlation Coefficient

Monster Beverage  Inspire Medical

Significant diversification

The 3 months correlation between Monster and Inspire is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Inspire Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspire Medical Systems 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 Inspire Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspire Medical Systems has no effect on the direction of Monster Beverage i.e., Monster Beverage and Inspire Medical go up and down completely randomly.

Pair Corralation between Monster Beverage and Inspire Medical

Assuming the 90 days trading horizon Monster Beverage Corp is expected to under-perform the Inspire Medical. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage Corp is 1.86 times less risky than Inspire Medical. The stock trades about -0.04 of its potential returns per unit of risk. The Inspire Medical Systems is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  17,825  in Inspire Medical Systems on October 23, 2024 and sell it today you would lose (835.00) from holding Inspire Medical Systems or give up 4.68% of portfolio value over 90 days.

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

Monster Beverage Corp  vs.  Inspire Medical Systems

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 comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Inspire Medical Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspire Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Inspire Medical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Monster Beverage and Inspire Medical

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

The idea behind Monster Beverage Corp and Inspire Medical Systems 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.