Correlation Between Diageo Plc and Check Point

Can any of the company-specific risk be diversified away by investing in both Diageo Plc and Check Point 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 Diageo Plc and Check Point into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Diageo plc and Check Point Software, you can compare the effects of market volatilities on Diageo Plc and Check Point 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 Diageo Plc with a short position of Check Point. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo Plc and Check Point.

Diversification Opportunities for Diageo Plc and Check Point

-0.84

Correlation Coefficient

Diageo Plc  Check Point

Pay attention - limited upside

The 3 months correlation between Diageo and Check is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and Check Point Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Check Point Software and Diageo Plc 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 Diageo plc are associated (or correlated) with Check Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Check Point Software has no effect on the direction of Diageo Plc i.e., Diageo Plc and Check Point go up and down completely randomly.

Pair Corralation between Diageo Plc and Check Point

Assuming the 90 days trading horizon Diageo plc is expected to under-perform the Check Point. But the stock apears to be less risky and, when comparing its historical volatility, Diageo plc is 1.06 times less risky than Check Point. The stock trades about -0.21 of its potential returns per unit of risk. The Check Point Software is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  18,030  in Check Point Software on December 21, 2024 and sell it today you would earn a total of  3,070  from holding Check Point Software or generate 17.03% return on investment over 90 days.

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

Diageo plc  vs.  Check Point Software

Diageo plc

Risk-Adjusted Performance

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 fragile performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 13 (%) 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.

Pair Trading with Diageo Plc and Check Point

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

The idea behind Diageo plc and Check Point Software 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.