Correlation Between North American and Check Point

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

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

Diversification Opportunities for North American and Check Point

-0.2

Correlation Coefficient

North American  Check Point

Good diversification

The 3 months correlation between North and Check is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 North American 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 North American Construction 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 North American i.e., North American and Check Point go up and down completely randomly.

Pair Corralation between North American and Check Point

Assuming the 90 days horizon North American Construction is expected to generate 2.37 times more return on investment than Check Point. However, North American is 2.37 times more volatile than Check Point Software. It trades about 0.19 of its potential returns per unit of risk. Check Point Software is currently generating about 0.07 per unit of risk. If you would invest  1,830  in North American Construction on October 5, 2024 and sell it today you would earn a total of  170.00  from holding North American Construction or generate 9.29% return on investment over 90 days.

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

North American Construction  vs.  Check Point Software

North American Const

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

Check Point Software

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Check Point Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Check Point is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with North American and Check Point

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