Correlation Between Check Point and NatWest Group

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

Diversification Opportunities for Check Point and NatWest Group

0.79

Correlation Coefficient

Check Point  NatWest Group

Poor diversification

The 3 months correlation between Check and NatWest is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and NatWest Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NatWest 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 NatWest Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NatWest Group plc has no effect on the direction of Check Point i.e., Check Point and NatWest Group go up and down completely randomly.

Pair Corralation between Check Point and NatWest Group

Assuming the 90 days trading horizon Check Point Software is expected to generate 0.5 times more return on investment than NatWest Group. However, Check Point Software is 2.01 times less risky than NatWest Group. It trades about 0.1 of its potential returns per unit of risk. NatWest Group plc is currently generating about -0.23 per unit of risk. If you would invest  57,095  in Check Point Software on October 12, 2024 and sell it today you would earn a total of  809.00  from holding Check Point Software or generate 1.42% return on investment over 90 days.

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

Check Point Software  vs.  NatWest Group plc

Check Point Software

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 15 (%) 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.

NatWest Group plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NatWest Group plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NatWest Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Check Point and NatWest Group

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

The idea behind Check Point Software and NatWest 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..