Correlation Between SAP SE and ServiceNow

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

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

Diversification Opportunities for SAP SE and ServiceNow

0.05

Correlation Coefficient

SAP SE  ServiceNow

Significant diversification

The 3 months correlation between SAP and ServiceNow is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and SAP SE 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 SAP SE 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 SAP SE i.e., SAP SE and ServiceNow go up and down completely randomly.

Pair Corralation between SAP SE and ServiceNow

Assuming the 90 days trading horizon SAP SE is expected to generate 0.71 times more return on investment than ServiceNow. However, SAP SE is 1.4 times less risky than ServiceNow. It trades about 0.04 of its potential returns per unit of risk. ServiceNow is currently generating about -0.19 per unit of risk. If you would invest  23,600  in SAP SE on December 29, 2024 and sell it today you would earn a total of  800.00  from holding SAP SE or generate 3.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

SAP SE  vs.  ServiceNow

SAP SE

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SAP SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SAP SE and ServiceNow

The main advantage of trading using opposite SAP SE and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SAP SE 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 SAP SE 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.