Correlation Between Monster Beverage and JAPAN TOBACCO

Can any of the company-specific risk be diversified away by investing in both Monster Beverage and JAPAN TOBACCO 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 JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12, you can compare the effects of market volatilities on Monster Beverage and JAPAN TOBACCO 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 JAPAN TOBACCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and JAPAN TOBACCO.

Diversification Opportunities for Monster Beverage and JAPAN TOBACCO

-0.34

Correlation Coefficient

Monster Beverage  JAPAN TOBACCO

Very good diversification

The 3 months correlation between Monster and JAPAN is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and JAPAN TOBACCO UNSPADR12 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN TOBACCO UNSPADR12 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 JAPAN TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN TOBACCO UNSPADR12 has no effect on the direction of Monster Beverage i.e., Monster Beverage and JAPAN TOBACCO go up and down completely randomly.

Pair Corralation between Monster Beverage and JAPAN TOBACCO

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 0.86 times more return on investment than JAPAN TOBACCO. However, Monster Beverage Corp is 1.17 times less risky than JAPAN TOBACCO. It trades about 0.05 of its potential returns per unit of risk. JAPAN TOBACCO UNSPADR12 is currently generating about 0.02 per unit of risk. If you would invest  4,794  in Monster Beverage Corp on September 3, 2024 and sell it today you would earn a total of  469.00  from holding Monster Beverage Corp or generate 9.78% return on investment over 90 days.

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

Monster Beverage Corp  vs.  JAPAN TOBACCO UNSPADR12

Monster Beverage Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monster Beverage unveiled solid returns over the last few months and may actually be approaching a breakup point.

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN TOBACCO UNSPADR12 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, JAPAN TOBACCO 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 JAPAN TOBACCO

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

The idea behind Monster Beverage Corp and JAPAN TOBACCO UNSPADR12 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.