Correlation Between Microsoft and Check Point

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

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

Diversification Opportunities for Microsoft and Check Point

0.11

Correlation Coefficient

Microsoft  Check Point

Average diversification

The 3 months correlation between Microsoft and Check is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Check Point go up and down completely randomly.

Pair Corralation between Microsoft and Check Point

Assuming the 90 days trading horizon Microsoft is expected to generate 1.94 times less return on investment than Check Point. But when comparing it to its historical volatility, Microsoft is 1.06 times less risky than Check Point. It trades about 0.13 of its potential returns per unit of risk. Check Point Software is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  17,080  in Check Point Software on September 27, 2024 and sell it today you would earn a total of  950.00  from holding Check Point Software or generate 5.56% return on investment over 90 days.

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

Microsoft  vs.  Check Point Software

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Microsoft and Check Point

The main advantage of trading using opposite Microsoft and Check Point positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.