Correlation Between Zoom Video and Automatic Data

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

Diversification Opportunities for Zoom Video and Automatic Data

0.85

Correlation Coefficient

Zoom Video  Automatic Data

Very poor diversification

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

Pair Corralation between Zoom Video and Automatic Data

Assuming the 90 days trading horizon Zoom Video Communications is expected to generate 2.12 times more return on investment than Automatic Data. However, Zoom Video is 2.12 times more volatile than Automatic Data Processing. It trades about 0.18 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.1 per unit of risk. If you would invest  6,783  in Zoom Video Communications on September 25, 2024 and sell it today you would earn a total of  1,743  from holding Zoom Video Communications or generate 25.7% return on investment over 90 days.

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

Zoom Video Communications  vs.  Automatic Data Processing

Zoom Video Communications

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Zoom Video unveiled solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zoom Video and Automatic Data

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

The idea behind Zoom Video Communications and Automatic Data Processing 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.