Correlation Between Microchip Technology and Check Point

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

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

Diversification Opportunities for Microchip Technology and Check Point

-0.47

Correlation Coefficient

Microchip Technology  Check Point

Very good diversification

The 3 months correlation between Microchip and Check is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora 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 Microchip Technology 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 Microchip Technology Incorporated 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 Microchip Technology i.e., Microchip Technology and Check Point go up and down completely randomly.

Pair Corralation between Microchip Technology and Check Point

Assuming the 90 days horizon Microchip Technology Incorporated is expected to under-perform the Check Point. In addition to that, Microchip Technology is 1.89 times more volatile than Check Point Software. It trades about -0.08 of its total potential returns per unit of risk. Check Point Software is currently generating about 0.19 per unit of volatility. If you would invest  17,670  in Check Point Software on December 3, 2024 and sell it today you would earn a total of  3,360  from holding Check Point Software or generate 19.02% return on investment over 90 days.

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

Microchip Technology Incorpora  vs.  Check Point Software

Microchip Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microchip Technology Incorporated 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 basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 unsteady basic indicators, Check Point displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and Check Point

The main advantage of trading using opposite Microchip Technology and Check Point positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology 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 Microchip Technology Incorporated 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.