Correlation Between Newpark Resources and ServiceNow

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

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

Diversification Opportunities for Newpark Resources and ServiceNow

0.14

Correlation Coefficient

Newpark Resources  ServiceNow

Average diversification

The 3 months correlation between Newpark and ServiceNow is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Newpark Resources 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 Newpark Resources 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 Newpark Resources i.e., Newpark Resources and ServiceNow go up and down completely randomly.

Pair Corralation between Newpark Resources and ServiceNow

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 3.23 times less return on investment than ServiceNow. In addition to that, Newpark Resources is 1.46 times more volatile than ServiceNow. It trades about 0.05 of its total potential returns per unit of risk. ServiceNow is currently generating about 0.23 per unit of volatility. If you would invest  83,586  in ServiceNow on September 1, 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 Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Newpark Resources  vs.  ServiceNow

Newpark Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Newpark Resources may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 fragile basic indicators, ServiceNow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newpark Resources and ServiceNow

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

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.