Correlation Between Zoom Video and Compass

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

Diversification Opportunities for Zoom Video and Compass

0.73

Correlation Coefficient

Zoom Video  Compass

Poor diversification

The 3 months correlation between Zoom and Compass is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and Compass in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass 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 Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass has no effect on the direction of Zoom Video i.e., Zoom Video and Compass go up and down completely randomly.

Pair Corralation between Zoom Video and Compass

Allowing for the 90-day total investment horizon Zoom Video is expected to generate 4.46 times less return on investment than Compass. But when comparing it to its historical volatility, Zoom Video Communications is 2.3 times less risky than Compass. It trades about 0.04 of its potential returns per unit of risk. Compass is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  210.00  in Compass on September 14, 2024 and sell it today you would earn a total of  480.00  from holding Compass or generate 228.57% return on investment over 90 days.

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

Zoom Video Communications  vs.  Compass

Zoom Video Communications

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal primary indicators, Zoom Video displayed solid returns over the last few months and may actually be approaching a breakup point.

Compass

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compass are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zoom Video and Compass

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

The idea behind Zoom Video Communications and Compass 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.