Correlation Between CarsalesCom and ServiceNow

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

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

Diversification Opportunities for CarsalesCom and ServiceNow

0.56

Correlation Coefficient

CarsalesCom  ServiceNow

Very weak diversification

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

Pair Corralation between CarsalesCom and ServiceNow

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to generate 1.35 times more return on investment than ServiceNow. However, CarsalesCom is 1.35 times more volatile than ServiceNow. It trades about 0.23 of its potential returns per unit of risk. ServiceNow is currently generating about 0.24 per unit of risk. If you would invest  4,840  in CarsalesCom Ltd ADR on September 20, 2024 and sell it today you would earn a total of  567.00  from holding CarsalesCom Ltd ADR or generate 11.71% return on investment over 90 days.

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

CarsalesCom Ltd ADR  vs.  ServiceNow

CarsalesCom ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom Ltd ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, CarsalesCom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ServiceNow

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, ServiceNow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CarsalesCom and ServiceNow

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

The idea behind CarsalesCom Ltd ADR and ServiceNow 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.