Correlation Between IPC MEXICO and Monster Beverage

Can any of the company-specific risk be diversified away by investing in both IPC MEXICO and Monster Beverage 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 IPC MEXICO and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IPC MEXICO and Monster Beverage Corp, you can compare the effects of market volatilities on IPC MEXICO and Monster Beverage 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 IPC MEXICO with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPC MEXICO and Monster Beverage.

Diversification Opportunities for IPC MEXICO and Monster Beverage

-0.54

Correlation Coefficient

IPC MEXICO  Monster Beverage

Excellent diversification

The 3 months correlation between IPC and Monster is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Monster Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage Corp and IPC MEXICO 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 IPC MEXICO are associated (or correlated) with Monster Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monster Beverage Corp has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and Monster Beverage go up and down completely randomly.

Pair Corralation between IPC MEXICO and Monster Beverage

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the Monster Beverage. But the index apears to be less risky and, when comparing its historical volatility, IPC MEXICO is 1.99 times less risky than Monster Beverage. The index trades about -0.04 of its potential returns per unit of risk. The Monster Beverage Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  95,500  in Monster Beverage Corp on September 3, 2024 and sell it today you would earn a total of  18,000  from holding Monster Beverage Corp or generate 18.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.85%
Values	Daily Returns

IPC MEXICO  vs.  Monster Beverage Corp

Pair Trading with IPC MEXICO and Monster Beverage

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

The idea behind IPC MEXICO and Monster Beverage Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.