Correlation Between Check Point and Lundin Energy

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

Diversification Opportunities for Check Point and Lundin Energy

-0.73

Correlation Coefficient

Check Point  Lundin Energy

Pay attention - limited upside

The 3 months correlation between Check and Lundin is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Lundin Energy AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lundin Energy AB 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 Lundin Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lundin Energy AB has no effect on the direction of Check Point i.e., Check Point and Lundin Energy go up and down completely randomly.

Pair Corralation between Check Point and Lundin Energy

Assuming the 90 days trading horizon Check Point Software is expected to generate 0.58 times more return on investment than Lundin Energy. However, Check Point Software is 1.73 times less risky than Lundin Energy. It trades about 0.2 of its potential returns per unit of risk. Lundin Energy AB is currently generating about -0.02 per unit of risk. If you would invest  17,860  in Check Point Software on December 4, 2024 and sell it today you would earn a total of  3,370  from holding Check Point Software or generate 18.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Check Point Software  vs.  Lundin Energy AB

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 15 (%) 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.

Lundin Energy AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lundin Energy AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lundin Energy 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 Lundin Energy

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

The idea behind Check Point Software and Lundin Energy AB 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.