Correlation Between Monster Beverage and PSI Software

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

Diversification Opportunities for Monster Beverage and PSI Software

-0.48

Correlation Coefficient

Monster Beverage  PSI Software

Very good diversification

The 3 months correlation between Monster and PSI is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and PSI Software AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSI Software AG 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 PSI Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSI Software AG has no effect on the direction of Monster Beverage i.e., Monster Beverage and PSI Software go up and down completely randomly.

Pair Corralation between Monster Beverage and PSI Software

Assuming the 90 days trading horizon Monster Beverage is expected to generate 1.69 times less return on investment than PSI Software. In addition to that, Monster Beverage is 1.23 times more volatile than PSI Software AG. It trades about 0.08 of its total potential returns per unit of risk. PSI Software AG is currently generating about 0.17 per unit of volatility. If you would invest  2,070  in PSI Software AG on October 6, 2024 and sell it today you would earn a total of  50.00  from holding PSI Software AG or generate 2.42% return on investment over 90 days.

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

Monster Beverage Corp  vs.  PSI Software AG

Monster Beverage Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 11 (%) 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.

PSI Software AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSI Software AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PSI Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Monster Beverage and PSI Software

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

The idea behind Monster Beverage Corp and PSI Software AG 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.