Correlation Between Monster Beverage and Waste Management

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

Diversification Opportunities for Monster Beverage and Waste Management

0.81

Correlation Coefficient

Monster Beverage  Waste Management

Very poor diversification

The 3 months correlation between Monster and Waste is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Monster Beverage i.e., Monster Beverage and Waste Management go up and down completely randomly.

Pair Corralation between Monster Beverage and Waste Management

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 0.95 times more return on investment than Waste Management. However, Monster Beverage Corp is 1.06 times less risky than Waste Management. It trades about -0.09 of its potential returns per unit of risk. Waste Management is currently generating about -0.09 per unit of risk. If you would invest  5,070  in Monster Beverage Corp on October 11, 2024 and sell it today you would lose (87.00) from holding Monster Beverage Corp or give up 1.72% of portfolio value over 90 days.

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

Monster Beverage Corp  vs.  Waste Management

Monster Beverage Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Waste Management

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Waste Management is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monster Beverage and Waste Management

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

The idea behind Monster Beverage Corp and Waste Management 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.