Correlation Between Zoom Video and Lam Research

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

Diversification Opportunities for Zoom Video and Lam Research

0.41

Correlation Coefficient

Zoom Video  Lam Research

Very weak diversification

The 3 months correlation between Zoom and Lam is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and Lam Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research has no effect on the direction of Zoom Video i.e., Zoom Video and Lam Research go up and down completely randomly.

Pair Corralation between Zoom Video and Lam Research

Assuming the 90 days trading horizon Zoom Video is expected to generate 145.2 times less return on investment than Lam Research. But when comparing it to its historical volatility, Zoom Video Communications is 67.68 times less risky than Lam Research. It trades about 0.07 of its potential returns per unit of risk. Lam Research is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  888.00  in Lam Research on October 24, 2024 and sell it today you would earn a total of  230.00  from holding Lam Research or generate 25.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.58%
Values	Daily Returns

Zoom Video Communications  vs.  Lam Research

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. Despite somewhat weak basic indicators, Zoom Video sustained solid returns over the last few months and may actually be approaching a breakup point.

Lam Research

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lam Research sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zoom Video and Lam Research

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

The idea behind Zoom Video Communications and Lam Research 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.