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
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Check is 0.08. 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 under-perform the Check Point. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.41 times less risky than Check Point. The stock trades about -0.36 of its potential returns per unit of risk. The Check Point Software is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest 18,075 in Check Point Software on October 15, 2024 and sell it today you would lose (425.00) from holding Check Point Software or give up 2.35% of portfolio value 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. Major Drilling Group | Microsoft vs. Solstad Offshore ASA | Microsoft vs. CN DATANG C | Microsoft vs. CSSC Offshore Marine |
| Check Point vs. Hyster Yale Materials Handling | Check Point vs. Vulcan Materials | Check Point vs. Nok Airlines PCL | Check Point vs. Heidelberg Materials AG |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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