Correlation Between Check Point and Trend Micro

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

Diversification Opportunities for Check Point and Trend Micro

0.3

Correlation Coefficient

Check Point  Trend Micro

Weak diversification

The 3 months correlation between Check and Trend is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Trend Micro ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trend Micro ADR 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 Trend Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trend Micro ADR has no effect on the direction of Check Point i.e., Check Point and Trend Micro go up and down completely randomly.

Pair Corralation between Check Point and Trend Micro

Given the investment horizon of 90 days Check Point Software is expected to generate 0.59 times more return on investment than Trend Micro. However, Check Point Software is 1.68 times less risky than Trend Micro. It trades about 0.42 of its potential returns per unit of risk. Trend Micro ADR is currently generating about 0.14 per unit of risk. If you would invest  17,353  in Check Point Software on September 18, 2024 and sell it today you would earn a total of  1,668  from holding Check Point Software or generate 9.61% return on investment over 90 days.

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

Check Point Software  vs.  Trend Micro ADR

Check Point Software

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking signals, Check Point is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Trend Micro ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trend Micro ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Check Point and Trend Micro

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

The idea behind Check Point Software and Trend Micro ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.