Correlation Between ServiceNow and VHAI

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

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

Diversification Opportunities for ServiceNow and VHAI

-0.45

Correlation Coefficient

ServiceNow  VHAI

Very good diversification

The 3 months correlation between ServiceNow and VHAI is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and VHAI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VHAI 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 VHAI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VHAI has no effect on the direction of ServiceNow i.e., ServiceNow and VHAI go up and down completely randomly.

Pair Corralation between ServiceNow and VHAI

Considering the 90-day investment horizon ServiceNow is expected to generate 0.14 times more return on investment than VHAI. However, ServiceNow is 6.94 times less risky than VHAI. It trades about 0.25 of its potential returns per unit of risk. VHAI is currently generating about -0.01 per unit of risk. If you would invest  87,895  in ServiceNow on September 13, 2024 and sell it today you would earn a total of  26,823  from holding ServiceNow or generate 30.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	87.3%
Values	Daily Returns

ServiceNow  vs.  VHAI

ServiceNow

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 19 (%) 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.

VHAI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VHAI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, VHAI is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ServiceNow and VHAI

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

The idea behind ServiceNow and VHAI 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.