Correlation Between Monster Beverage and US Foods

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

Diversification Opportunities for Monster Beverage and US Foods

0.09

Correlation Coefficient

Monster Beverage  US Foods

Significant diversification

The 3 months correlation between Monster and UFH is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and US Foods Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Foods Holding 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 US Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Foods Holding has no effect on the direction of Monster Beverage i.e., Monster Beverage and US Foods go up and down completely randomly.

Pair Corralation between Monster Beverage and US Foods

Assuming the 90 days trading horizon Monster Beverage Corp is expected to under-perform the US Foods. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage Corp is 1.1 times less risky than US Foods. The stock trades about -0.06 of its potential returns per unit of risk. The US Foods Holding is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,550  in US Foods Holding on October 26, 2024 and sell it today you would earn a total of  1,100  from holding US Foods Holding or generate 19.82% return on investment over 90 days.

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

Monster Beverage Corp  vs.  US Foods Holding

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.

US Foods Holding

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Foods Holding are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, US Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and US Foods

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

The idea behind Monster Beverage Corp and US Foods Holding 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.