Correlation Between Home Depot and ServiceNow
Can any of the company-specific risk be diversified away by investing in both Home Depot 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 Home Depot and ServiceNow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Home Depot and ServiceNow, you can compare the effects of market volatilities on Home Depot 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 Home Depot with a short position of ServiceNow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and ServiceNow.
Diversification Opportunities for Home Depot and ServiceNow
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Home and ServiceNow is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Home Depot 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 Home Depot 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 Home Depot i.e., Home Depot and ServiceNow go up and down completely randomly.
Pair Corralation between Home Depot and ServiceNow
Assuming the 90 days trading horizon Home Depot is expected to generate 1.25 times less return on investment than ServiceNow. But when comparing it to its historical volatility, The Home Depot is 1.32 times less risky than ServiceNow. It trades about 0.41 of its potential returns per unit of risk. ServiceNow is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 11,088 in ServiceNow on September 4, 2024 and sell it today you would earn a total of 1,723 from holding ServiceNow or generate 15.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.0% |
| Values | Daily Returns |
The Home Depot vs. ServiceNow
Performance |
| Timeline |
| Home Depot |
| ServiceNow |
Home Depot and ServiceNow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and ServiceNow
The main advantage of trading using opposite Home Depot and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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.| Home Depot vs. Unipar Carbocloro SA | Home Depot vs. ArcelorMittal SA | Home Depot vs. Unipar Carbocloro SA | Home Depot vs. Apartment Investment and |
| ServiceNow vs. United States Steel | ServiceNow vs. Bemobi Mobile Tech | ServiceNow vs. Multilaser Industrial SA | ServiceNow vs. GP Investments |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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