Correlation Between STMicroelectronics and ServiceNow

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

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

Diversification Opportunities for STMicroelectronics and ServiceNow

-0.74

Correlation Coefficient

STMicroelectronics  ServiceNow

Pay attention - limited upside

The 3 months correlation between STMicroelectronics and ServiceNow is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and STMicroelectronics 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 STMicroelectronics NV ADR 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 STMicroelectronics i.e., STMicroelectronics and ServiceNow go up and down completely randomly.

Pair Corralation between STMicroelectronics and ServiceNow

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the ServiceNow. In addition to that, STMicroelectronics is 1.11 times more volatile than ServiceNow. It trades about -0.02 of its total potential returns per unit of risk. ServiceNow is currently generating about 0.11 per unit of volatility. If you would invest  38,985  in ServiceNow on September 19, 2024 and sell it today you would earn a total of  67,114  from holding ServiceNow or generate 172.15% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  ServiceNow

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

ServiceNow

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 10 (%) 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 STMicroelectronics and ServiceNow

The main advantage of trading using opposite STMicroelectronics and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV ADR 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.