Correlation Between Check Point and Lloyds Banking

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

Diversification Opportunities for Check Point and Lloyds Banking

-0.25

Correlation Coefficient

Check Point  Lloyds Banking

Very good diversification

The 3 months correlation between Check and Lloyds is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Lloyds Banking Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lloyds Banking Group 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 Lloyds Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lloyds Banking Group has no effect on the direction of Check Point i.e., Check Point and Lloyds Banking go up and down completely randomly.

Pair Corralation between Check Point and Lloyds Banking

Assuming the 90 days trading horizon Check Point Software is expected to generate 1.62 times more return on investment than Lloyds Banking. However, Check Point is 1.62 times more volatile than Lloyds Banking Group. It trades about 0.26 of its potential returns per unit of risk. Lloyds Banking Group is currently generating about 0.05 per unit of risk. If you would invest  45,135  in Check Point Software on October 6, 2024 and sell it today you would earn a total of  13,619  from holding Check Point Software or generate 30.17% 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.  Lloyds Banking Group

Check Point Software

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 16 (%) 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.

Lloyds Banking Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lloyds Banking Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lloyds Banking is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Check Point and Lloyds Banking

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

The idea behind Check Point Software and Lloyds Banking Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.