Correlation Between Digi International and ServiceNow

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

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

Diversification Opportunities for Digi International and ServiceNow

0.87

Correlation Coefficient

Digi International  ServiceNow

Very poor diversification

The 3 months correlation between Digi and ServiceNow is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Digi International 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 Digi International 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 Digi International i.e., Digi International and ServiceNow go up and down completely randomly.

Pair Corralation between Digi International and ServiceNow

Given the investment horizon of 90 days Digi International is expected to generate 1.08 times less return on investment than ServiceNow. In addition to that, Digi International is 1.17 times more volatile than ServiceNow. It trades about 0.19 of its total potential returns per unit of risk. ServiceNow is currently generating about 0.24 per unit of volatility. If you would invest  89,246  in ServiceNow on September 14, 2024 and sell it today you would earn a total of  25,596  from holding ServiceNow or generate 28.68% return on investment over 90 days.

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

Digi International  vs.  ServiceNow

Digi International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ServiceNow

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 18 (%) 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 Digi International and ServiceNow

The main advantage of trading using opposite Digi International and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digi International 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 Digi International 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.