Correlation Between ServiceNow and Trade Desk

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

By analyzing existing cross correlation between ServiceNow and The Trade Desk, you can compare the effects of market volatilities on ServiceNow and Trade Desk 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 Trade Desk. Check out your portfolio center. Please also check ongoing floating volatility patterns of ServiceNow and Trade Desk.

Diversification Opportunities for ServiceNow and Trade Desk

0.95

Correlation Coefficient

ServiceNow  Trade Desk

Almost no diversification

The 3 months correlation between ServiceNow and Trade is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and The Trade Desk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trade Desk 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 Trade Desk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trade Desk has no effect on the direction of ServiceNow i.e., ServiceNow and Trade Desk go up and down completely randomly.

Pair Corralation between ServiceNow and Trade Desk

Assuming the 90 days horizon ServiceNow is expected to generate 0.74 times more return on investment than Trade Desk. However, ServiceNow is 1.35 times less risky than Trade Desk. It trades about 0.26 of its potential returns per unit of risk. The Trade Desk is currently generating about 0.1 per unit of risk. If you would invest  83,980  in ServiceNow on September 23, 2024 and sell it today you would earn a total of  20,280  from holding ServiceNow or generate 24.15% return on investment over 90 days.

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

ServiceNow  vs.  The Trade Desk

ServiceNow

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ServiceNow reported solid returns over the last few months and may actually be approaching a breakup point.

Trade Desk

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Trade Desk are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Trade Desk reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ServiceNow and Trade Desk

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

The idea behind ServiceNow and The Trade Desk 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.