Correlation Between Check Point and AIR CHINA

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

Diversification Opportunities for Check Point and AIR CHINA

-0.45

Correlation Coefficient

Check Point  AIR CHINA

Very good diversification

The 3 months correlation between Check and AIR is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and AIR CHINA LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR CHINA LTD 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 AIR CHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR CHINA LTD has no effect on the direction of Check Point i.e., Check Point and AIR CHINA go up and down completely randomly.

Pair Corralation between Check Point and AIR CHINA

Assuming the 90 days trading horizon Check Point Software is expected to generate 0.56 times more return on investment than AIR CHINA. However, Check Point Software is 1.78 times less risky than AIR CHINA. It trades about 0.16 of its potential returns per unit of risk. AIR CHINA LTD is currently generating about 0.02 per unit of risk. If you would invest  18,095  in Check Point Software on December 20, 2024 and sell it today you would earn a total of  3,005  from holding Check Point Software or generate 16.61% return on investment over 90 days.

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

Check Point Software  vs.  AIR CHINA LTD

Check Point Software

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Check Point displayed solid returns over the last few months and may actually be approaching a breakup point.

AIR CHINA LTD

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AIR CHINA LTD are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AIR CHINA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Check Point and AIR CHINA

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

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