Correlation Between Check Point and KGHM Polska

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

Diversification Opportunities for Check Point and KGHM Polska

0.2

Correlation Coefficient

Check Point  KGHM Polska

Modest diversification

The 3 months correlation between Check and KGHM is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and KGHM Polska Miedz in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KGHM Polska Miedz 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 KGHM Polska. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KGHM Polska Miedz has no effect on the direction of Check Point i.e., Check Point and KGHM Polska go up and down completely randomly.

Pair Corralation between Check Point and KGHM Polska

Assuming the 90 days trading horizon Check Point Software is expected to generate 0.6 times more return on investment than KGHM Polska. However, Check Point Software is 1.67 times less risky than KGHM Polska. It trades about 0.06 of its potential returns per unit of risk. KGHM Polska Miedz is currently generating about 0.02 per unit of risk. If you would invest  12,174  in Check Point Software on September 26, 2024 and sell it today you would earn a total of  5,856  from holding Check Point Software or generate 48.1% 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.  KGHM Polska Miedz

Check Point Software

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Check Point is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

KGHM Polska Miedz

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KGHM Polska Miedz has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Check Point and KGHM Polska

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

The idea behind Check Point Software and KGHM Polska Miedz 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.