Correlation Between Check Point and SPS Commerce

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

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

Diversification Opportunities for Check Point and SPS Commerce

-0.44

Correlation Coefficient

Check Point  SPS Commerce

Very good diversification

The 3 months correlation between Check and SPS is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and SPS Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPS Commerce and Check Point 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 Check Point Software are associated (or correlated) with SPS Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPS Commerce has no effect on the direction of Check Point i.e., Check Point and SPS Commerce go up and down completely randomly.

Pair Corralation between Check Point and SPS Commerce

Given the investment horizon of 90 days Check Point Software is expected to under-perform the SPS Commerce. But the stock apears to be less risky and, when comparing its historical volatility, Check Point Software is 1.91 times less risky than SPS Commerce. The stock trades about -0.06 of its potential returns per unit of risk. The SPS Commerce is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  18,410  in SPS Commerce on February 23, 2024 and sell it today you would earn a total of  866.00  from holding SPS Commerce or generate 4.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Check Point Software  vs.  SPS Commerce

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. Even with relatively invariable forward-looking signals, Check Point is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

SPS Commerce

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPS Commerce are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, SPS Commerce is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Check Point and SPS Commerce

The main advantage of trading using opposite Check Point and SPS Commerce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Check Point position performs unexpectedly, SPS Commerce 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 SPS Commerce will offset losses from the drop in SPS Commerce's long position.

The idea behind Check Point Software and SPS Commerce 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.