Correlation Between SMS Co, and ServiceNow

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

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

Diversification Opportunities for SMS Co, and ServiceNow

-0.81

Correlation Coefficient

SMS Co,  ServiceNow

Pay attention - limited upside

The 3 months correlation between SMS and ServiceNow is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding SMS Co, and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and SMS Co, 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 SMS Co, 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 SMS Co, i.e., SMS Co, and ServiceNow go up and down completely randomly.

Pair Corralation between SMS Co, and ServiceNow

If you would invest  107,007  in ServiceNow on September 27, 2024 and sell it today you would earn a total of  3,549  from holding ServiceNow or generate 3.32% return on investment over 90 days.

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

SMS Co,  vs.  ServiceNow

SMS Co,

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMS Co, has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ServiceNow

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, ServiceNow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMS Co, and ServiceNow

The main advantage of trading using opposite SMS Co, and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMS Co, 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 SMS Co, 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.