Correlation Between ServiceNow and Bank of America

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

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

Diversification Opportunities for ServiceNow and Bank of America

-0.39

Correlation Coefficient

ServiceNow  Bank of America

Very good diversification

The 3 months correlation between ServiceNow and Bank is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and ServiceNow 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 ServiceNow are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of ServiceNow i.e., ServiceNow and Bank of America go up and down completely randomly.

Pair Corralation between ServiceNow and Bank of America

Considering the 90-day investment horizon ServiceNow is expected to under-perform the Bank of America. In addition to that, ServiceNow is 5.25 times more volatile than Bank of America. It trades about -0.16 of its total potential returns per unit of risk. Bank of America is currently generating about 0.12 per unit of volatility. If you would invest  2,169  in Bank of America on December 22, 2024 and sell it today you would earn a total of  76.00  from holding Bank of America or generate 3.5% return on investment over 90 days.

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

ServiceNow  vs.  Bank of America

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 conflicting performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Bank of America

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Bank of America is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ServiceNow and Bank of America

The main advantage of trading using opposite ServiceNow and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ServiceNow position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.

The idea behind ServiceNow and Bank of America 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.