Correlation Between 3M and Monster Beverage

Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and Monster Beverage, you can compare the effects of market volatilities on 3M 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 3M with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Monster Beverage.

Diversification Opportunities for 3M and Monster Beverage

0.6

Correlation Coefficient

3M  Monster Beverage

Poor diversification

The 3 months correlation between 3M and Monster is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Monster Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage and 3M 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 3M Company 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 3M i.e., 3M and Monster Beverage go up and down completely randomly.

Pair Corralation between 3M and Monster Beverage

Assuming the 90 days trading horizon 3M Company is expected to generate 0.65 times more return on investment than Monster Beverage. However, 3M Company is 1.54 times less risky than Monster Beverage. It trades about 0.2 of its potential returns per unit of risk. Monster Beverage is currently generating about -0.16 per unit of risk. If you would invest  155,200  in 3M Company on February 3, 2024 and sell it today you would earn a total of  9,717  from holding 3M Company or generate 6.26% return on investment over 90 days.

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

3M Company  vs.  Monster Beverage

3M Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, 3M may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Monster Beverage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monster Beverage has generated negative risk-adjusted returns adding no value to investors with long positions. 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 3M and Monster Beverage

The main advantage of trading using opposite 3M and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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 3M Company 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.