Correlation Between Monster Beverage and BG Foods

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

Diversification Opportunities for Monster Beverage and BG Foods

-0.44

Correlation Coefficient

Monster Beverage  BG Foods

Very good diversification

The 3 months correlation between Monster and DHR is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods 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 BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Monster Beverage i.e., Monster Beverage and BG Foods go up and down completely randomly.

Pair Corralation between Monster Beverage and BG Foods

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 0.49 times more return on investment than BG Foods. However, Monster Beverage Corp is 2.03 times less risky than BG Foods. It trades about 0.01 of its potential returns per unit of risk. BG Foods is currently generating about -0.03 per unit of risk. If you would invest  4,705  in Monster Beverage Corp on October 25, 2024 and sell it today you would lose (75.00) from holding Monster Beverage Corp or give up 1.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Monster Beverage Corp  vs.  BG Foods

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

BG Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BG Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Monster Beverage and BG Foods

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

The idea behind Monster Beverage Corp and BG Foods 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .