Correlation Between ServiceNow and Drilling Tools

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

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

Diversification Opportunities for ServiceNow and Drilling Tools

-0.19

Correlation Coefficient

ServiceNow  Drilling Tools

Good diversification

The 3 months correlation between ServiceNow and Drilling is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Drilling Tools International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drilling Tools Inter 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 Drilling Tools. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drilling Tools Inter has no effect on the direction of ServiceNow i.e., ServiceNow and Drilling Tools go up and down completely randomly.

Pair Corralation between ServiceNow and Drilling Tools

Considering the 90-day investment horizon ServiceNow is expected to generate 0.74 times more return on investment than Drilling Tools. However, ServiceNow is 1.36 times less risky than Drilling Tools. It trades about 0.11 of its potential returns per unit of risk. Drilling Tools International is currently generating about -0.07 per unit of risk. If you would invest  93,859  in ServiceNow on October 11, 2024 and sell it today you would earn a total of  11,049  from holding ServiceNow or generate 11.77% return on investment over 90 days.

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

ServiceNow  vs.  Drilling Tools International

ServiceNow

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, ServiceNow may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Drilling Tools Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Drilling Tools International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with ServiceNow and Drilling Tools

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

The idea behind ServiceNow and Drilling Tools International 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.