Correlation Between Zoom Video and Advanced Energy

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

Diversification Opportunities for Zoom Video and Advanced Energy

0.83

Correlation Coefficient

Zoom Video  Advanced Energy

Very poor diversification

The 3 months correlation between Zoom and Advanced is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and Advanced Energy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Indu 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 Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Indu has no effect on the direction of Zoom Video i.e., Zoom Video and Advanced Energy go up and down completely randomly.

Pair Corralation between Zoom Video and Advanced Energy

Allowing for the 90-day total investment horizon Zoom Video Communications is expected to generate 1.1 times more return on investment than Advanced Energy. However, Zoom Video is 1.1 times more volatile than Advanced Energy Industries. It trades about 0.15 of its potential returns per unit of risk. Advanced Energy Industries is currently generating about 0.14 per unit of risk. If you would invest  6,883  in Zoom Video Communications on September 2, 2024 and sell it today you would earn a total of  1,386  from holding Zoom Video Communications or generate 20.14% 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.  Advanced Energy Industries

Zoom Video Communications

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Zoom Video displayed solid returns over the last few months and may actually be approaching a breakup point.

Advanced Energy Indu

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zoom Video and Advanced Energy

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

The idea behind Zoom Video Communications and Advanced Energy Industries 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.