Correlation Between Zoom Video and Applied Materials

Can any of the company-specific risk be diversified away by investing in both Zoom Video and Applied Materials 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 Applied Materials 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 Applied Materials, you can compare the effects of market volatilities on Zoom Video and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zoom Video and Applied Materials.

Diversification Opportunities for Zoom Video and Applied Materials

-0.52

Correlation Coefficient

Zoom Video  Applied Materials

Excellent diversification

The 3 months correlation between Zoom and Applied is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Zoom Video i.e., Zoom Video and Applied Materials go up and down completely randomly.

Pair Corralation between Zoom Video and Applied Materials

Assuming the 90 days trading horizon Zoom Video is expected to generate 1.16 times less return on investment than Applied Materials. But when comparing it to its historical volatility, Zoom Video Communications is 1.2 times less risky than Applied Materials. It trades about 0.04 of its potential returns per unit of risk. Applied Materials is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  13,325  in Applied Materials on October 4, 2024 and sell it today you would earn a total of  2,679  from holding Applied Materials or generate 20.11% return on investment over 90 days.

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

Zoom Video Communications  vs.  Applied Materials

Zoom Video Communications

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Zoom Video unveiled solid returns over the last few months and may actually be approaching a breakup point.

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Zoom Video and Applied Materials

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

The idea behind Zoom Video Communications and Applied Materials 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.