Correlation Between Nippon Steel and ServiceNow

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

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

Diversification Opportunities for Nippon Steel and ServiceNow

0.11

Correlation Coefficient

Nippon Steel  ServiceNow

Average diversification

The 3 months correlation between Nippon and ServiceNow is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel Corp and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Nippon Steel 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 Nippon Steel Corp 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 Nippon Steel i.e., Nippon Steel and ServiceNow go up and down completely randomly.

Pair Corralation between Nippon Steel and ServiceNow

Assuming the 90 days horizon Nippon Steel is expected to generate 3.78 times less return on investment than ServiceNow. In addition to that, Nippon Steel is 1.15 times more volatile than ServiceNow. It trades about 0.04 of its total potential returns per unit of risk. ServiceNow is currently generating about 0.17 per unit of volatility. If you would invest  95,085  in ServiceNow on October 25, 2024 and sell it today you would earn a total of  17,432  from holding ServiceNow or generate 18.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Nippon Steel Corp  vs.  ServiceNow

Nippon Steel Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Nippon Steel is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Nippon Steel and ServiceNow

The main advantage of trading using opposite Nippon Steel and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel 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 Nippon Steel Corp 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.