Correlation Between ServiceNow and ChampionX

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

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

Diversification Opportunities for ServiceNow and ChampionX

-0.15

Correlation Coefficient

ServiceNow  ChampionX

Good diversification

The 3 months correlation between ServiceNow and ChampionX is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and ChampionX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChampionX 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 ChampionX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChampionX has no effect on the direction of ServiceNow i.e., ServiceNow and ChampionX go up and down completely randomly.

Pair Corralation between ServiceNow and ChampionX

Considering the 90-day investment horizon ServiceNow is expected to generate 0.88 times more return on investment than ChampionX. However, ServiceNow is 1.13 times less risky than ChampionX. It trades about 0.22 of its potential returns per unit of risk. ChampionX is currently generating about -0.03 per unit of risk. If you would invest  89,039  in ServiceNow on September 18, 2024 and sell it today you would earn a total of  23,954  from holding ServiceNow or generate 26.9% return on investment over 90 days.

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

ServiceNow  vs.  ChampionX

ServiceNow

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 17 (%) 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.

ChampionX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChampionX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, ChampionX is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ServiceNow and ChampionX

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

The idea behind ServiceNow and ChampionX 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.