Correlation Between Zoom Video and Advance Auto

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

Diversification Opportunities for Zoom Video and Advance Auto

0.8

Correlation Coefficient

Zoom Video  Advance Auto

Very poor diversification

The 3 months correlation between Zoom and Advance is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts 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 Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Zoom Video i.e., Zoom Video and Advance Auto go up and down completely randomly.

Pair Corralation between Zoom Video and Advance Auto

Assuming the 90 days trading horizon Zoom Video Communications is expected to under-perform the Advance Auto. But the stock apears to be less risky and, when comparing its historical volatility, Zoom Video Communications is 1.53 times less risky than Advance Auto. The stock trades about -0.13 of its potential returns per unit of risk. The Advance Auto Parts is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,676  in Advance Auto Parts on December 23, 2024 and sell it today you would lose (330.00) from holding Advance Auto Parts or give up 19.69% of portfolio value over 90 days.

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

Zoom Video Communications  vs.  Advance Auto Parts

Zoom Video Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zoom Video Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Advance Auto Parts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advance Auto Parts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Zoom Video and Advance Auto

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

The idea behind Zoom Video Communications and Advance Auto Parts 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.