Correlation Between Rolls Royce and Zoom Video

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

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

Diversification Opportunities for Rolls Royce and Zoom Video

0.06

Correlation Coefficient

Rolls Royce  Zoom Video

Significant diversification

The 3 months correlation between Rolls and Zoom is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC 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 Rolls Royce 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 Rolls Royce Holdings PLC 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 Rolls Royce i.e., Rolls Royce and Zoom Video go up and down completely randomly.

Pair Corralation between Rolls Royce and Zoom Video

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 1.53 times more return on investment than Zoom Video. However, Rolls Royce is 1.53 times more volatile than Zoom Video Communications. It trades about 0.18 of its potential returns per unit of risk. Zoom Video Communications is currently generating about 0.0 per unit of risk. If you would invest  59,480  in Rolls Royce Holdings PLC on December 4, 2024 and sell it today you would earn a total of  18,200  from holding Rolls Royce Holdings PLC or generate 30.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  Zoom Video Communications

Rolls Royce Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Rolls Royce exhibited solid returns over the last few months and may actually be approaching a breakup point.

Zoom Video Communications

Risk-Adjusted Performance

Weak

Over the last 90 days Zoom Video Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Zoom Video is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rolls Royce and Zoom Video

The main advantage of trading using opposite Rolls Royce and Zoom Video positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce 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 Rolls Royce Holdings PLC 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.