Correlation Between Zoom Video and HK Electric

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

Diversification Opportunities for Zoom Video and HK Electric

0.81

Correlation Coefficient

Zoom Video  HK Electric

Very poor diversification

The 3 months correlation between Zoom and HKT is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Zoom Video Communications and HK Electric Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HK Electric Investments 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 HK Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HK Electric Investments has no effect on the direction of Zoom Video i.e., Zoom Video and HK Electric go up and down completely randomly.

Pair Corralation between Zoom Video and HK Electric

Assuming the 90 days trading horizon Zoom Video is expected to generate 3.69 times less return on investment than HK Electric. But when comparing it to its historical volatility, Zoom Video Communications is 1.46 times less risky than HK Electric. It trades about 0.05 of its potential returns per unit of risk. HK Electric Investments is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  28.00  in HK Electric Investments on September 20, 2024 and sell it today you would earn a total of  35.00  from holding HK Electric Investments or generate 125.0% 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.  HK Electric Investments

Zoom Video Communications

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Zoom Video unveiled solid returns over the last few months and may actually be approaching a breakup point.

HK Electric Investments

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HK Electric Investments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, HK Electric is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Zoom Video and HK Electric

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

The idea behind Zoom Video Communications and HK Electric Investments 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.