Correlation Between Associated British and Check Point

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

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

Diversification Opportunities for Associated British and Check Point

0.58

Correlation Coefficient

Associated British  Check Point

Very weak diversification

The 3 months correlation between Associated and Check is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods 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 Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and Check Point go up and down completely randomly.

Pair Corralation between Associated British and Check Point

Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Check Point. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.19 times less risky than Check Point. The stock trades about -0.11 of its potential returns per unit of risk. The Check Point Software is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  17,684  in Check Point Software on September 15, 2024 and sell it today you would earn a total of  1,124  from holding Check Point Software or generate 6.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Associated British Foods  vs.  Check Point Software

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Associated British is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Associated British and Check Point

The main advantage of trading using opposite Associated British and Check Point positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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 Associated British Foods 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.