Correlation Between Weibo Corp and ServiceNow

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

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

Diversification Opportunities for Weibo Corp and ServiceNow

0.15

Correlation Coefficient

Weibo Corp  ServiceNow

Average diversification

The 3 months correlation between Weibo and ServiceNow is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Weibo Corp and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Weibo Corp 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 Weibo 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 Weibo Corp i.e., Weibo Corp and ServiceNow go up and down completely randomly.

Pair Corralation between Weibo Corp and ServiceNow

Allowing for the 90-day total investment horizon Weibo Corp is expected to generate 1.53 times less return on investment than ServiceNow. In addition to that, Weibo Corp is 1.41 times more volatile than ServiceNow. It trades about 0.04 of its total potential returns per unit of risk. ServiceNow is currently generating about 0.1 per unit of volatility. If you would invest  73,581  in ServiceNow on October 12, 2024 and sell it today you would earn a total of  31,327  from holding ServiceNow or generate 42.57% return on investment over 90 days.

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

Weibo Corp  vs.  ServiceNow

Weibo Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weibo Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Weibo Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ServiceNow

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, ServiceNow may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Weibo Corp and ServiceNow

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

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.