Correlation Between AeroVironment and ServiceNow

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

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

Diversification Opportunities for AeroVironment and ServiceNow

0.85

Correlation Coefficient

AeroVironment  ServiceNow

Very poor diversification

The 3 months correlation between AeroVironment and ServiceNow is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and AeroVironment 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 AeroVironment 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 AeroVironment i.e., AeroVironment and ServiceNow go up and down completely randomly.

Pair Corralation between AeroVironment and ServiceNow

Assuming the 90 days horizon AeroVironment is expected to generate 1.14 times more return on investment than ServiceNow. However, AeroVironment is 1.14 times more volatile than ServiceNow. It trades about -0.14 of its potential returns per unit of risk. ServiceNow is currently generating about -0.17 per unit of risk. If you would invest  15,000  in AeroVironment on December 25, 2024 and sell it today you would lose (3,565) from holding AeroVironment or give up 23.77% of portfolio value over 90 days.

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

AeroVironment  vs.  ServiceNow

AeroVironment

Risk-Adjusted Performance

Very Weak

Over the last 90 days AeroVironment 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.

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 fragile 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.

Pair Trading with AeroVironment and ServiceNow

The main advantage of trading using opposite AeroVironment and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AeroVironment 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 AeroVironment 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.