Correlation Between Check Point and Northern Trust

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

Diversification Opportunities for Check Point and Northern Trust

-0.26

Correlation Coefficient

Check Point  Northern Trust

Very good diversification

The 3 months correlation between Check and Northern is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust 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 Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of Check Point i.e., Check Point and Northern Trust go up and down completely randomly.

Pair Corralation between Check Point and Northern Trust

Assuming the 90 days trading horizon Check Point is expected to generate 1.04 times less return on investment than Northern Trust. But when comparing it to its historical volatility, Check Point Software is 1.01 times less risky than Northern Trust. It trades about 0.08 of its potential returns per unit of risk. Northern Trust is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,779  in Northern Trust on October 4, 2024 and sell it today you would earn a total of  3,121  from holding Northern Trust or generate 46.04% return on investment over 90 days.

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

Check Point Software  vs.  Northern Trust

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.

Northern Trust

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Check Point and Northern Trust

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

The idea behind Check Point Software and Northern Trust 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.