Correlation Between MACOM Technology and ServiceNow

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

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

Diversification Opportunities for MACOM Technology and ServiceNow

0.61

Correlation Coefficient

MACOM Technology  ServiceNow

Poor diversification

The 3 months correlation between MACOM and ServiceNow is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding MACOM Technology Solutions and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and MACOM Technology 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 MACOM Technology Solutions 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 MACOM Technology i.e., MACOM Technology and ServiceNow go up and down completely randomly.

Pair Corralation between MACOM Technology and ServiceNow

Given the investment horizon of 90 days MACOM Technology Solutions is expected to under-perform the ServiceNow. In addition to that, MACOM Technology is 1.3 times more volatile than ServiceNow. It trades about -0.08 of its total potential returns per unit of risk. ServiceNow is currently generating about -0.08 per unit of volatility. If you would invest  104,843  in ServiceNow on November 30, 2024 and sell it today you would lose (11,867) from holding ServiceNow or give up 11.32% of portfolio value over 90 days.

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

MACOM Technology Solutions  vs.  ServiceNow

MACOM Technology Sol

Risk-Adjusted Performance

Very Weak

Over the last 90 days MACOM Technology Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with MACOM Technology and ServiceNow

The main advantage of trading using opposite MACOM Technology and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MACOM Technology 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 MACOM Technology Solutions 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .