Correlation Between ServiceNow and Shopify

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

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

Diversification Opportunities for ServiceNow and Shopify

0.56

Correlation Coefficient

ServiceNow  Shopify

Very weak diversification

The 3 months correlation between ServiceNow and Shopify is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify and ServiceNow 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 ServiceNow are associated (or correlated) with Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of ServiceNow i.e., ServiceNow and Shopify go up and down completely randomly.

Pair Corralation between ServiceNow and Shopify

Assuming the 90 days horizon ServiceNow is expected to under-perform the Shopify. But the stock apears to be less risky and, when comparing its historical volatility, ServiceNow is 1.33 times less risky than Shopify. The stock trades about -0.16 of its potential returns per unit of risk. The Shopify is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  10,188  in Shopify on December 28, 2024 and sell it today you would lose (798.00) from holding Shopify or give up 7.83% of portfolio value over 90 days.

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

ServiceNow  vs.  Shopify

ServiceNow

Risk-Adjusted Performance

Very Weak

Over the last 90 days ServiceNow has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Shopify

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Shopify is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ServiceNow and Shopify

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

The idea behind ServiceNow and Shopify 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.