Correlation Between Monster Beverage and COSTCO WHOLESALE

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

Diversification Opportunities for Monster Beverage and COSTCO WHOLESALE

0.6

Correlation Coefficient

Monster Beverage  COSTCO WHOLESALE

Poor diversification

The 3 months correlation between Monster and COSTCO is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and COSTCO WHOLESALE CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSTCO WHOLESALE CDR 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 COSTCO WHOLESALE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSTCO WHOLESALE CDR has no effect on the direction of Monster Beverage i.e., Monster Beverage and COSTCO WHOLESALE go up and down completely randomly.

Pair Corralation between Monster Beverage and COSTCO WHOLESALE

Assuming the 90 days trading horizon Monster Beverage is expected to generate 1.16 times less return on investment than COSTCO WHOLESALE. In addition to that, Monster Beverage is 1.03 times more volatile than COSTCO WHOLESALE CDR. It trades about 0.04 of its total potential returns per unit of risk. COSTCO WHOLESALE CDR is currently generating about 0.05 per unit of volatility. If you would invest  2,649  in COSTCO WHOLESALE CDR on September 29, 2024 and sell it today you would earn a total of  271.00  from holding COSTCO WHOLESALE CDR or generate 10.23% 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.  COSTCO WHOLESALE CDR

Monster Beverage Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 6 (%) 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.

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COSTCO WHOLESALE CDR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monster Beverage and COSTCO WHOLESALE

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

The idea behind Monster Beverage Corp and COSTCO WHOLESALE CDR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.