Correlation Between Anheuser Busch and Monster Beverage

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

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

Diversification Opportunities for Anheuser Busch and Monster Beverage

0.04

Correlation Coefficient

Anheuser Busch  Monster Beverage

Significant diversification

The 3 months correlation between Anheuser and Monster is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Anheuser Busch Inbev 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 Anheuser Busch 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 Anheuser Busch Inbev 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 Anheuser Busch i.e., Anheuser Busch and Monster Beverage go up and down completely randomly.

Pair Corralation between Anheuser Busch and Monster Beverage

Considering the 90-day investment horizon Anheuser Busch Inbev is expected to generate 0.99 times more return on investment than Monster Beverage. However, Anheuser Busch Inbev is 1.01 times less risky than Monster Beverage. It trades about 0.04 of its potential returns per unit of risk. Monster Beverage Corp is currently generating about -0.37 per unit of risk. If you would invest  5,978  in Anheuser Busch Inbev on January 25, 2024 and sell it today you would earn a total of  48.00  from holding Anheuser Busch Inbev or generate 0.8% return on investment over 90 days.

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

Anheuser Busch Inbev  vs.  Monster Beverage Corp

Anheuser Busch Inbev

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anheuser Busch Inbev has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Anheuser Busch is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Monster Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monster Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Anheuser Busch and Monster Beverage

The main advantage of trading using opposite Anheuser Busch and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anheuser Busch 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 Anheuser Busch Inbev 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.