Correlation Between Zoom Video and WPP PLC

Can any of the company-specific risk be diversified away by investing in both Zoom Video and WPP PLC 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 Zoom Video and WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zoom Video Communications and WPP PLC, you can compare the effects of market volatilities on Zoom Video and WPP PLC 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 Zoom Video with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zoom Video and WPP PLC.

Diversification Opportunities for Zoom Video and WPP PLC

0.34

Correlation Coefficient

Zoom Video  WPP PLC

Weak diversification

The 3 months correlation between Zoom and WPP is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC and Zoom Video 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 Zoom Video Communications are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC has no effect on the direction of Zoom Video i.e., Zoom Video and WPP PLC go up and down completely randomly.

Pair Corralation between Zoom Video and WPP PLC

Assuming the 90 days trading horizon Zoom Video Communications is expected to generate 1.28 times more return on investment than WPP PLC. However, Zoom Video is 1.28 times more volatile than WPP PLC. It trades about 0.09 of its potential returns per unit of risk. WPP PLC is currently generating about -0.1 per unit of risk. If you would invest  6,752  in Zoom Video Communications on October 25, 2024 and sell it today you would earn a total of  772.00  from holding Zoom Video Communications or generate 11.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Zoom Video Communications  vs.  WPP PLC

Zoom Video Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Zoom Video unveiled solid returns over the last few months and may actually be approaching a breakup point.

WPP PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WPP PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Zoom Video and WPP PLC

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

The idea behind Zoom Video Communications and WPP PLC 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.