Correlation Between Zoom Video and DiamondRock Hospitality

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

Diversification Opportunities for Zoom Video and DiamondRock Hospitality

0.73

Correlation Coefficient

Zoom Video  DiamondRock Hospitality

Poor diversification

The 3 months correlation between Zoom and DiamondRock is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and DiamondRock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiamondRock Hospitality 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 DiamondRock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DiamondRock Hospitality has no effect on the direction of Zoom Video i.e., Zoom Video and DiamondRock Hospitality go up and down completely randomly.

Pair Corralation between Zoom Video and DiamondRock Hospitality

Assuming the 90 days trading horizon Zoom Video Communications is expected to under-perform the DiamondRock Hospitality. In addition to that, Zoom Video is 1.6 times more volatile than DiamondRock Hospitality. It trades about -0.07 of its total potential returns per unit of risk. DiamondRock Hospitality is currently generating about 0.03 per unit of volatility. If you would invest  885.00  in DiamondRock Hospitality on September 24, 2024 and sell it today you would earn a total of  5.00  from holding DiamondRock Hospitality or generate 0.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Zoom Video Communications  vs.  DiamondRock Hospitality

Zoom Video Communications

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 16 (%) 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.

DiamondRock Hospitality

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DiamondRock Hospitality are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DiamondRock Hospitality reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zoom Video and DiamondRock Hospitality

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

The idea behind Zoom Video Communications and DiamondRock Hospitality 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 Transaction History module to view history of all your transactions and understand their impact on performance.