Correlation Between Carvana and Zoom Video

Can any of the company-specific risk be diversified away by investing in both Carvana and Zoom Video 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 Carvana and Zoom Video into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Carvana Co and Zoom Video Communications, you can compare the effects of market volatilities on Carvana and Zoom Video 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 Carvana with a short position of Zoom Video. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carvana and Zoom Video.

Diversification Opportunities for Carvana and Zoom Video

-0.01

Correlation Coefficient

Carvana  Zoom Video

Good diversification

The 3 months correlation between Carvana and Zoom is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Carvana Co and Zoom Video Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zoom Video Communications and Carvana 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 Carvana Co are associated (or correlated) with Zoom Video. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zoom Video Communications has no effect on the direction of Carvana i.e., Carvana and Zoom Video go up and down completely randomly.

Pair Corralation between Carvana and Zoom Video

Given the investment horizon of 90 days Carvana Co is expected to under-perform the Zoom Video. In addition to that, Carvana is 2.48 times more volatile than Zoom Video Communications. It trades about -0.3 of its total potential returns per unit of risk. Zoom Video Communications is currently generating about -0.46 per unit of volatility. If you would invest  6,686  in Zoom Video Communications on January 20, 2024 and sell it today you would lose (692.00) from holding Zoom Video Communications or give up 10.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Carvana Co  vs.  Zoom Video Communications

Carvana

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carvana Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Carvana sustained solid returns over the last few months and may actually be approaching a breakup point.

Zoom Video Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoom Video Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Carvana and Zoom Video

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

The idea behind Carvana Co and Zoom Video Communications 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.