Correlation Between GM and ServiceNow
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and ServiceNow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and ServiceNow, you can compare the effects of market volatilities on GM 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 GM with a short position of ServiceNow. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and ServiceNow.
Diversification Opportunities for GM and ServiceNow
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and ServiceNow is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and GM 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 General Motors 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 GM i.e., GM and ServiceNow go up and down completely randomly.
Pair Corralation between GM and ServiceNow
Allowing for the 90-day total investment horizon GM is expected to generate 2.3 times less return on investment than ServiceNow. But when comparing it to its historical volatility, General Motors is 1.31 times less risky than ServiceNow. It trades about 0.05 of its potential returns per unit of risk. ServiceNow is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,527 in ServiceNow on November 28, 2024 and sell it today you would earn a total of 5,907 from holding ServiceNow or generate 130.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.58% |
| Values | Daily Returns |
General Motors vs. ServiceNow
Performance |
| Timeline |
| General Motors |
| ServiceNow |
GM and ServiceNow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and ServiceNow
The main advantage of trading using opposite GM and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| ServiceNow vs. Tres Tentos Agroindustrial | ServiceNow vs. Hormel Foods | ServiceNow vs. Liberty Broadband | ServiceNow vs. Multilaser Industrial SA |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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