Correlation Between CITIC and ServiceNow

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

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

Diversification Opportunities for CITIC and ServiceNow

-0.69

Correlation Coefficient

CITIC  ServiceNow

Excellent diversification

The 3 months correlation between CITIC and ServiceNow is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Limited and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and CITIC 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 CITIC Limited 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 CITIC i.e., CITIC and ServiceNow go up and down completely randomly.

Pair Corralation between CITIC and ServiceNow

Assuming the 90 days horizon CITIC Limited is expected to under-perform the ServiceNow. But the pink sheet apears to be less risky and, when comparing its historical volatility, CITIC Limited is 1.67 times less risky than ServiceNow. The pink sheet trades about -0.11 of its potential returns per unit of risk. The ServiceNow is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  90,768  in ServiceNow on October 23, 2024 and sell it today you would earn a total of  18,917  from holding ServiceNow or generate 20.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

CITIC Limited  vs.  ServiceNow

CITIC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITIC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

ServiceNow

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 14 (%) 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 CITIC and ServiceNow

The main advantage of trading using opposite CITIC and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CITIC 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 CITIC Limited 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.