Correlation Between ServiceNow and Cadence Design

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

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

Diversification Opportunities for ServiceNow and Cadence Design

0.85

Correlation Coefficient

ServiceNow  Cadence Design

Very poor diversification

The 3 months correlation between ServiceNow and Cadence is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Cadence Design Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadence Design Systems and ServiceNow 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 ServiceNow are associated (or correlated) with Cadence Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadence Design Systems has no effect on the direction of ServiceNow i.e., ServiceNow and Cadence Design go up and down completely randomly.

Pair Corralation between ServiceNow and Cadence Design

Considering the 90-day investment horizon ServiceNow is expected to generate 0.67 times more return on investment than Cadence Design. However, ServiceNow is 1.5 times less risky than Cadence Design. It trades about 0.19 of its potential returns per unit of risk. Cadence Design Systems is currently generating about 0.09 per unit of risk. If you would invest  85,500  in ServiceNow on August 30, 2024 and sell it today you would earn a total of  18,640  from holding ServiceNow or generate 21.8% return on investment over 90 days.

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

ServiceNow  vs.  Cadence Design Systems

ServiceNow

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 15 (%) 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.

Cadence Design Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ServiceNow and Cadence Design

The main advantage of trading using opposite ServiceNow and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ServiceNow position performs unexpectedly, Cadence Design 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 Cadence Design will offset losses from the drop in Cadence Design's long position.

The idea behind ServiceNow and Cadence Design Systems 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.