Correlation Between Zoom Video and Alibaba Group

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

Diversification Opportunities for Zoom Video and Alibaba Group

-0.26

Correlation Coefficient

Zoom Video  Alibaba Group

Very good diversification

The 3 months correlation between Zoom and Alibaba is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and Alibaba Group Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alibaba Group Holding 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 Alibaba Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alibaba Group Holding has no effect on the direction of Zoom Video i.e., Zoom Video and Alibaba Group go up and down completely randomly.

Pair Corralation between Zoom Video and Alibaba Group

Assuming the 90 days trading horizon Zoom Video Communications is expected to generate 0.81 times more return on investment than Alibaba Group. However, Zoom Video Communications is 1.24 times less risky than Alibaba Group. It trades about 0.23 of its potential returns per unit of risk. Alibaba Group Holding is currently generating about 0.1 per unit of risk. If you would invest  1,513  in Zoom Video Communications on September 14, 2024 and sell it today you would earn a total of  583.00  from holding Zoom Video Communications or generate 38.53% return on investment over 90 days.

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

Zoom Video Communications  vs.  Alibaba Group Holding

Zoom Video Communications

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 17 (%) 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.

Alibaba Group Holding

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zoom Video and Alibaba Group

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

The idea behind Zoom Video Communications and Alibaba Group Holding 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.