Correlation Between Check Point and CVS Health

Can any of the company-specific risk be diversified away by investing in both Check Point and CVS Health 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 CVS Health 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 CVS Health, you can compare the effects of market volatilities on Check Point and CVS Health 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 CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Check Point and CVS Health.

Diversification Opportunities for Check Point and CVS Health

0.16

Correlation Coefficient

Check Point  CVS Health

Average diversification

The 3 months correlation between Check and CVS is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of Check Point i.e., Check Point and CVS Health go up and down completely randomly.

Pair Corralation between Check Point and CVS Health

Assuming the 90 days trading horizon Check Point Software is expected to generate 0.73 times more return on investment than CVS Health. However, Check Point Software is 1.37 times less risky than CVS Health. It trades about 0.06 of its potential returns per unit of risk. CVS Health is currently generating about -0.05 per unit of risk. If you would invest  12,174  in Check Point Software on September 26, 2024 and sell it today you would earn a total of  5,856  from holding Check Point Software or generate 48.1% return on investment over 90 days.

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

Check Point Software  vs.  CVS Health

Check Point Software

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Check Point is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Check Point and CVS Health

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

The idea behind Check Point Software and CVS Health 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.