Correlation Between Valero Energy and Monster Beverage

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

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

Diversification Opportunities for Valero Energy and Monster Beverage

0.49

Correlation Coefficient

Valero Energy  Monster Beverage

Very weak diversification

The 3 months correlation between Valero and Monster is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Monster Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage and Valero Energy 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 Valero Energy 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 has no effect on the direction of Valero Energy i.e., Valero Energy and Monster Beverage go up and down completely randomly.

Pair Corralation between Valero Energy and Monster Beverage

Assuming the 90 days trading horizon Valero Energy is expected to generate 3.51 times less return on investment than Monster Beverage. But when comparing it to its historical volatility, Valero Energy is 2.23 times less risky than Monster Beverage. It trades about 0.02 of its potential returns per unit of risk. Monster Beverage is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,242  in Monster Beverage on October 11, 2024 and sell it today you would earn a total of  705.00  from holding Monster Beverage or generate 21.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	81.45%
Values	Daily Returns

Valero Energy  vs.  Monster Beverage

Valero Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Monster Beverage

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Valero Energy and Monster Beverage

The main advantage of trading using opposite Valero Energy and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valero Energy 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 Valero Energy and Monster Beverage 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.