Correlation Between Microsoft and Zoom Video

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Zoom Video 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 Microsoft and Zoom Video into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Zoom Video Communications, you can compare the effects of market volatilities on Microsoft and Zoom Video 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 Microsoft with a short position of Zoom Video. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Zoom Video.

Diversification Opportunities for Microsoft and Zoom Video

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Microsoft and Zoom is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Zoom Video Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zoom Video Communications and Microsoft 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 Microsoft are associated (or correlated) with Zoom Video. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zoom Video Communications has no effect on the direction of Microsoft i.e., Microsoft and Zoom Video go up and down completely randomly.

Pair Corralation between Microsoft and Zoom Video

Assuming the 90 days trading horizon Microsoft is expected to generate 1.13 times less return on investment than Zoom Video. But when comparing it to its historical volatility, Microsoft is 1.5 times less risky than Zoom Video. It trades about 0.08 of its potential returns per unit of risk. Zoom Video Communications is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,013  in Zoom Video Communications on October 4, 2024 and sell it today you would earn a total of  37.00  from holding Zoom Video Communications or generate 1.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Zoom Video Communications

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.
Zoom Video Communications 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zoom Video sustained solid returns over the last few months and may actually be approaching a breakup point.

Microsoft and Zoom Video Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Zoom Video

The main advantage of trading using opposite Microsoft and Zoom Video positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Zoom Video 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 Zoom Video will offset losses from the drop in Zoom Video's long position.
The idea behind Microsoft and Zoom Video Communications 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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