Correlation Between SM Energy and Check Point

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

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

Diversification Opportunities for SM Energy and Check Point

-0.17

Correlation Coefficient

SM Energy  Check Point

Good diversification

The 3 months correlation between 0KZA and Check is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Check Point Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Check Point Software and SM Energy 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 SM Energy Co are associated (or correlated) with Check Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Check Point Software has no effect on the direction of SM Energy i.e., SM Energy and Check Point go up and down completely randomly.

Pair Corralation between SM Energy and Check Point

Assuming the 90 days trading horizon SM Energy Co is expected to generate 1.15 times more return on investment than Check Point. However, SM Energy is 1.15 times more volatile than Check Point Software. It trades about 0.03 of its potential returns per unit of risk. Check Point Software is currently generating about -0.01 per unit of risk. If you would invest  3,920  in SM Energy Co on September 15, 2024 and sell it today you would earn a total of  99.00  from holding SM Energy Co or generate 2.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

SM Energy Co  vs.  Check Point Software

SM Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SM Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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. In spite of comparatively stable basic indicators, Check Point is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SM Energy and Check Point

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

The idea behind SM Energy Co and Check Point 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.