Correlation Between Monster Beverage and Warner Music

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

Diversification Opportunities for Monster Beverage and Warner Music

0.83

Correlation Coefficient

Monster Beverage  Warner Music

Very poor diversification

The 3 months correlation between Monster and Warner is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Music Group 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 Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of Monster Beverage i.e., Monster Beverage and Warner Music go up and down completely randomly.

Pair Corralation between Monster Beverage and Warner Music

Assuming the 90 days trading horizon Monster Beverage Corp is expected to under-perform the Warner Music. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage Corp is 1.31 times less risky than Warner Music. The stock trades about -0.25 of its potential returns per unit of risk. The Warner Music Group is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  3,068  in Warner Music Group on September 28, 2024 and sell it today you would lose (84.00) from holding Warner Music Group or give up 2.74% 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.  Warner Music Group

Monster Beverage Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Warner Music Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monster Beverage and Warner Music

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

The idea behind Monster Beverage Corp and Warner Music Group 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 Commodity Directory module to find actively traded commodities issued by global exchanges.