Correlation Between Check Point and Diageo Plc

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

Diversification Opportunities for Check Point and Diageo Plc

0.68

Correlation Coefficient

Check Point  Diageo Plc

Poor diversification

The 3 months correlation between Check and Diageo is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of Check Point i.e., Check Point and Diageo Plc go up and down completely randomly.

Pair Corralation between Check Point and Diageo Plc

Assuming the 90 days trading horizon Check Point Software is expected to under-perform the Diageo Plc. In addition to that, Check Point is 1.49 times more volatile than Diageo plc. It trades about -0.04 of its total potential returns per unit of risk. Diageo plc is currently generating about -0.01 per unit of volatility. If you would invest  3,062  in Diageo plc on October 10, 2024 and sell it today you would lose (47.00) from holding Diageo plc or give up 1.53% of portfolio value over 90 days.

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

Check Point Software  vs.  Diageo plc

Check Point Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Check Point Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Check Point is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Diageo plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Diageo Plc is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Check Point and Diageo Plc

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

The idea behind Check Point Software and Diageo 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.