Correlation Between Check Point and Home Depot

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

Diversification Opportunities for Check Point and Home Depot

0.51

Correlation Coefficient

Check Point  Home Depot

Very weak diversification

The 3 months correlation between Check and Home is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Check Point i.e., Check Point and Home Depot go up and down completely randomly.

Pair Corralation between Check Point and Home Depot

Assuming the 90 days trading horizon Check Point Software is expected to generate 1.49 times more return on investment than Home Depot. However, Check Point is 1.49 times more volatile than The Home Depot. It trades about 0.19 of its potential returns per unit of risk. The Home Depot is currently generating about 0.09 per unit of risk. If you would invest  45,135  in Check Point Software on October 23, 2024 and sell it today you would earn a total of  12,155  from holding Check Point Software or generate 26.93% return on investment over 90 days.

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

Check Point Software  vs.  The Home Depot

Check Point Software

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Check Point sustained solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Check Point and Home Depot

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

The idea behind Check Point Software and The Home Depot 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.