Correlation Between Check Point and Tokyo Gas

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

Diversification Opportunities for Check Point and Tokyo Gas

-0.29

Correlation Coefficient

Check Point  Tokyo Gas

Very good diversification

The 3 months correlation between Check and Tokyo is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Tokyo Gas CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Gas CoLtd 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 Tokyo Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Gas CoLtd has no effect on the direction of Check Point i.e., Check Point and Tokyo Gas go up and down completely randomly.

Pair Corralation between Check Point and Tokyo Gas

Assuming the 90 days trading horizon Check Point is expected to generate 5.9 times less return on investment than Tokyo Gas. But when comparing it to its historical volatility, Check Point Software is 1.11 times less risky than Tokyo Gas. It trades about 0.03 of its potential returns per unit of risk. Tokyo Gas CoLtd is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,120  in Tokyo Gas CoLtd on September 12, 2024 and sell it today you would earn a total of  640.00  from holding Tokyo Gas CoLtd or generate 30.19% return on investment over 90 days.

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

Check Point Software  vs.  Tokyo Gas CoLtd

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.

Tokyo Gas CoLtd

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Gas CoLtd are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tokyo Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Check Point and Tokyo Gas

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

The idea behind Check Point Software and Tokyo Gas CoLtd 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.