Correlation Between Target and Monster Beverage

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

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

Diversification Opportunities for Target and Monster Beverage

-0.3

Correlation Coefficient

Target  Monster Beverage

Very good diversification

The 3 months correlation between Target and Monster is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Target 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 Target 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 Target 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 Target i.e., Target and Monster Beverage go up and down completely randomly.

Pair Corralation between Target and Monster Beverage

Assuming the 90 days trading horizon Target is expected to under-perform the Monster Beverage. But the stock apears to be less risky and, when comparing its historical volatility, Target is 1.03 times less risky than Monster Beverage. The stock trades about -0.04 of its potential returns per unit of risk. The Monster Beverage Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  111,000  in Monster Beverage Corp on December 4, 2024 and sell it today you would earn a total of  2,700  from holding Monster Beverage Corp or generate 2.43% return on investment over 90 days.

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

Target  vs.  Monster Beverage Corp

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Monster Beverage Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Target and Monster Beverage

The main advantage of trading using opposite Target and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.