Correlation Between Monster Beverage and NORTHERN OCEAN

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

Diversification Opportunities for Monster Beverage and NORTHERN OCEAN

0.78

Correlation Coefficient

Monster Beverage  NORTHERN OCEAN

Poor diversification

The 3 months correlation between Monster and NORTHERN is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and NORTHERN OCEAN LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHERN OCEAN LTD 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 NORTHERN OCEAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHERN OCEAN LTD has no effect on the direction of Monster Beverage i.e., Monster Beverage and NORTHERN OCEAN go up and down completely randomly.

Pair Corralation between Monster Beverage and NORTHERN OCEAN

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 0.57 times more return on investment than NORTHERN OCEAN. However, Monster Beverage Corp is 1.75 times less risky than NORTHERN OCEAN. It trades about 0.06 of its potential returns per unit of risk. NORTHERN OCEAN LTD is currently generating about 0.02 per unit of risk. If you would invest  4,498  in Monster Beverage Corp on September 12, 2024 and sell it today you would earn a total of  572.00  from holding Monster Beverage Corp or generate 12.72% 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.  NORTHERN OCEAN LTD

Monster Beverage Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NORTHERN OCEAN LTD

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NORTHERN OCEAN LTD are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NORTHERN OCEAN reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and NORTHERN OCEAN

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

The idea behind Monster Beverage Corp and NORTHERN OCEAN LTD 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.