Correlation Between Wells Fargo and Check Point

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Can any of the company-specific risk be diversified away by investing in both Wells Fargo 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 Wells Fargo and Check Point into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and Check Point Software, you can compare the effects of market volatilities on Wells Fargo 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 Wells Fargo with a short position of Check Point. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Check Point.

Diversification Opportunities for Wells Fargo and Check Point

WellsCheckDiversified AwayWellsCheckDiversified Away100%
0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wells and Check is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo 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 Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and Check Point go up and down completely randomly.

Pair Corralation between Wells Fargo and Check Point

Assuming the 90 days horizon Wells Fargo is expected to generate 5.29 times less return on investment than Check Point. But when comparing it to its historical volatility, Wells Fargo is 1.57 times less risky than Check Point. It trades about 0.11 of its potential returns per unit of risk. Check Point Software is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  18,120  in Check Point Software on November 21, 2024 and sell it today you would earn a total of  2,880  from holding Check Point Software or generate 15.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Wells Fargo  vs.  Check Point Software

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 0510152025
JavaScript chart by amCharts 3.21.15NWT CPW
       Timeline  
Wells Fargo 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb66687072747678
Check Point Software 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 17 (%) 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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb170180190200210

Wells Fargo and Check Point Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.5-3.37-2.24-1.110.01881.182.383.574.77 0.050.100.15
JavaScript chart by amCharts 3.21.15NWT CPW
       Returns  

Pair Trading with Wells Fargo and Check Point

The main advantage of trading using opposite Wells Fargo and Check Point positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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 Wells Fargo 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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