Correlation Between Check Point and Compass Group

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

Diversification Opportunities for Check Point and Compass Group

-0.48

Correlation Coefficient

Check Point  Compass Group

Very good diversification

The 3 months correlation between Check and Compass is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group PLC 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 Compass Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Group PLC has no effect on the direction of Check Point i.e., Check Point and Compass Group go up and down completely randomly.

Pair Corralation between Check Point and Compass Group

Assuming the 90 days trading horizon Check Point Software is expected to under-perform the Compass Group. In addition to that, Check Point is 1.77 times more volatile than Compass Group PLC. It trades about -0.14 of its total potential returns per unit of risk. Compass Group PLC is currently generating about -0.12 per unit of volatility. If you would invest  270,000  in Compass Group PLC on October 8, 2024 and sell it today you would lose (3,600) from holding Compass Group PLC or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Check Point Software  vs.  Compass Group PLC

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.

Compass Group PLC

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Compass Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Check Point and Compass Group

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

The idea behind Check Point Software and Compass Group PLC 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.