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 |
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 0.93 times more return on investment than Check Point. However, Microsoft is 1.08 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 0.06 per unit of risk. If you would invest 20,742 in Microsoft on September 27, 2024 and sell it today you would earn a total of 21,088 from holding Microsoft or generate 101.67% 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
Performance |
| Timeline |
| Microsoft |
| Check Point Software |
Microsoft and Check Point Volatility Contrast
Predicted Return Density |
| Returns |
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.| Microsoft vs. Ultra Clean Holdings | Microsoft vs. DXC Technology Co | Microsoft vs. HK Electric Investments | Microsoft vs. WisdomTree Investments |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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