Correlation Between United States and ServiceNow

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

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

Diversification Opportunities for United States and ServiceNow

0.7

Correlation Coefficient

United States  ServiceNow

Poor diversification

The 3 months correlation between United and ServiceNow is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and United States 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 United States Steel 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 United States i.e., United States and ServiceNow go up and down completely randomly.

Pair Corralation between United States and ServiceNow

Assuming the 90 days trading horizon United States Steel is expected to generate 1.68 times more return on investment than ServiceNow. However, United States is 1.68 times more volatile than ServiceNow. It trades about 0.18 of its potential returns per unit of risk. ServiceNow is currently generating about 0.27 per unit of risk. If you would invest  16,587  in United States Steel on September 4, 2024 and sell it today you would earn a total of  6,273  from holding United States Steel or generate 37.82% return on investment over 90 days.

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

United States Steel  vs.  ServiceNow

United States Steel

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, United States sustained solid returns over the last few months and may actually be approaching a breakup point.

ServiceNow

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ServiceNow sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and ServiceNow

The main advantage of trading using opposite United States and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .