Correlation Between National CineMedia and ServiceNow

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

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

Diversification Opportunities for National CineMedia and ServiceNow

0.17

Correlation Coefficient

National CineMedia  ServiceNow

Average diversification

The 3 months correlation between National and ServiceNow is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding National CineMedia and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and National CineMedia 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 National CineMedia 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 National CineMedia i.e., National CineMedia and ServiceNow go up and down completely randomly.

Pair Corralation between National CineMedia and ServiceNow

Given the investment horizon of 90 days National CineMedia is expected to under-perform the ServiceNow. In addition to that, National CineMedia is 1.3 times more volatile than ServiceNow. It trades about -0.01 of its total potential returns per unit of risk. ServiceNow is currently generating about 0.17 per unit of volatility. If you would invest  89,064  in ServiceNow on October 3, 2024 and sell it today you would earn a total of  17,706  from holding ServiceNow or generate 19.88% return on investment over 90 days.

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

National CineMedia  vs.  ServiceNow

National CineMedia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National CineMedia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, National CineMedia is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

ServiceNow

Risk-Adjusted Performance

13 of 100

Good

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 weak basic indicators, ServiceNow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National CineMedia and ServiceNow

The main advantage of trading using opposite National CineMedia and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National CineMedia 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 National CineMedia 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.