Correlation Between ServiceNow and ECGI Holdings

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

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

Diversification Opportunities for ServiceNow and ECGI Holdings

-0.07

Correlation Coefficient

ServiceNow  ECGI Holdings

Good diversification

The 3 months correlation between ServiceNow and ECGI is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and ECGI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECGI Holdings 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 ECGI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECGI Holdings has no effect on the direction of ServiceNow i.e., ServiceNow and ECGI Holdings go up and down completely randomly.

Pair Corralation between ServiceNow and ECGI Holdings

Considering the 90-day investment horizon ServiceNow is expected to generate 2.54 times less return on investment than ECGI Holdings. But when comparing it to its historical volatility, ServiceNow is 8.98 times less risky than ECGI Holdings. It trades about 0.18 of its potential returns per unit of risk. ECGI Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.14  in ECGI Holdings on October 27, 2024 and sell it today you would lose (0.04) from holding ECGI Holdings or give up 28.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

ServiceNow  vs.  ECGI Holdings

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

ECGI Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ECGI Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, ECGI Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ServiceNow and ECGI Holdings

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

The idea behind ServiceNow and ECGI Holdings 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.