Correlation Between Smithson Investment and Check Point

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

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

Diversification Opportunities for Smithson Investment and Check Point

-0.25

Correlation Coefficient

Smithson Investment  Check Point

Very good diversification

The 3 months correlation between Smithson and Check is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust 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 Smithson Investment 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 Smithson Investment Trust 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 Smithson Investment i.e., Smithson Investment and Check Point go up and down completely randomly.

Pair Corralation between Smithson Investment and Check Point

Assuming the 90 days trading horizon Smithson Investment is expected to generate 4.19 times less return on investment than Check Point. But when comparing it to its historical volatility, Smithson Investment Trust is 1.09 times less risky than Check Point. It trades about 0.02 of its potential returns per unit of risk. Check Point Software is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  12,988  in Check Point Software on October 5, 2024 and sell it today you would earn a total of  5,653  from holding Check Point Software or generate 43.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.79%
Values	Daily Returns

Smithson Investment Trust  vs.  Check Point Software

Smithson Investment Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smithson Investment Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Smithson Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Check Point Software

Risk-Adjusted Performance

0 of 100

Very 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 comparatively stable basic indicators, Check Point is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Smithson Investment and Check Point

The main advantage of trading using opposite Smithson Investment and Check Point positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smithson Investment 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 Smithson Investment Trust 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.