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

0.5

Correlation Coefficient

Microsoft  Check Point

Very weak diversification

The 3 months correlation between Microsoft and Check is 0.5. 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

Given the investment horizon of 90 days Microsoft is expected to generate 2.63 times more return on investment than Check Point. However, Microsoft is 2.63 times more volatile than Check Point Software. It trades about -0.07 of its potential returns per unit of risk. Check Point Software is currently generating about -0.35 per unit of risk. If you would invest  43,525  in Microsoft on October 23, 2024 and sell it today you would lose (622.00) from holding Microsoft or give up 1.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Microsoft  vs.  Check Point Software

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Check Point Software

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Check Point sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

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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 Valuation module to check real value of public entities based on technical and fundamental data.