Correlation Between Coca Cola and ServiceNow

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

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

Diversification Opportunities for Coca Cola and ServiceNow

-0.88

Correlation Coefficient

Coca Cola  ServiceNow

Pay attention - limited upside

The 3 months correlation between Coca and ServiceNow is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Coca Cola 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 The Coca Cola 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 Coca Cola i.e., Coca Cola and ServiceNow go up and down completely randomly.

Pair Corralation between Coca Cola and ServiceNow

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the ServiceNow. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.96 times less risky than ServiceNow. The stock trades about -0.21 of its potential returns per unit of risk. The ServiceNow is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  83,586  in ServiceNow on September 3, 2024 and sell it today you would earn a total of  21,358  from holding ServiceNow or generate 25.55% return on investment over 90 days.

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

The Coca Cola  vs.  ServiceNow

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

ServiceNow

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, ServiceNow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and ServiceNow

The main advantage of trading using opposite Coca Cola and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola 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 The Coca Cola 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.