Correlation Between Check Point and UPDATE SOFTWARE

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

Diversification Opportunities for Check Point and UPDATE SOFTWARE

-0.35

Correlation Coefficient

Check Point  UPDATE SOFTWARE

Very good diversification

The 3 months correlation between Check and UPDATE is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and UPDATE SOFTWARE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPDATE SOFTWARE 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 UPDATE SOFTWARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPDATE SOFTWARE has no effect on the direction of Check Point i.e., Check Point and UPDATE SOFTWARE go up and down completely randomly.

Pair Corralation between Check Point and UPDATE SOFTWARE

Assuming the 90 days trading horizon Check Point is expected to generate 11.78 times less return on investment than UPDATE SOFTWARE. But when comparing it to its historical volatility, Check Point Software is 1.92 times less risky than UPDATE SOFTWARE. It trades about 0.03 of its potential returns per unit of risk. UPDATE SOFTWARE is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  955.00  in UPDATE SOFTWARE on September 23, 2024 and sell it today you would earn a total of  602.00  from holding UPDATE SOFTWARE or generate 63.04% 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.  UPDATE SOFTWARE

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 current stock price disarray, may contribute to short-term losses for the investors.

UPDATE SOFTWARE

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UPDATE SOFTWARE are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, UPDATE SOFTWARE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Check Point and UPDATE SOFTWARE

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

The idea behind Check Point Software and UPDATE SOFTWARE 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.