Correlation Between Check Point and DigitalOcean Holdings

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

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

Diversification Opportunities for Check Point and DigitalOcean Holdings

0.76

Correlation Coefficient

Check Point  DigitalOcean Holdings

Poor diversification

The 3 months correlation between Check and DigitalOcean is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and DigitalOcean Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DigitalOcean Holdings and Check Point 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 Check Point Software are associated (or correlated) with DigitalOcean Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DigitalOcean Holdings has no effect on the direction of Check Point i.e., Check Point and DigitalOcean Holdings go up and down completely randomly.

Pair Corralation between Check Point and DigitalOcean Holdings

Given the investment horizon of 90 days Check Point is expected to generate 1.45 times less return on investment than DigitalOcean Holdings. But when comparing it to its historical volatility, Check Point Software is 2.5 times less risky than DigitalOcean Holdings. It trades about 0.06 of its potential returns per unit of risk. DigitalOcean Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,555  in DigitalOcean Holdings on September 21, 2024 and sell it today you would earn a total of  1,059  from holding DigitalOcean Holdings or generate 41.45% return on investment over 90 days.

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

Check Point Software  vs.  DigitalOcean Holdings

Check Point Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Check Point Software has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Check Point is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

DigitalOcean Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DigitalOcean Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Check Point and DigitalOcean Holdings

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

The idea behind Check Point Software and DigitalOcean Holdings 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.