Correlation Between Zoom Video and Home Depot

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

Diversification Opportunities for Zoom Video and Home Depot

0.6

Correlation Coefficient

Zoom Video  Home Depot

Poor diversification

The 3 months correlation between Zoom and Home is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Zoom Video i.e., Zoom Video and Home Depot go up and down completely randomly.

Pair Corralation between Zoom Video and Home Depot

Assuming the 90 days trading horizon Zoom Video is expected to generate 2.03 times less return on investment than Home Depot. In addition to that, Zoom Video is 1.73 times more volatile than The Home Depot. It trades about 0.02 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.05 per unit of volatility. If you would invest  29,152  in The Home Depot on October 26, 2024 and sell it today you would earn a total of  10,268  from holding The Home Depot or generate 35.22% 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.  The Home Depot

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 uncertain basic indicators, Zoom Video unveiled solid returns over the last few months and may actually be approaching a breakup point.

Home Depot

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Zoom Video and Home Depot

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

The idea behind Zoom Video Communications and The Home Depot 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.