Correlation Between Lincoln Electric and ServiceNow
Can any of the company-specific risk be diversified away by investing in both Lincoln Electric 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 Lincoln Electric and ServiceNow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lincoln Electric Holdings and ServiceNow, you can compare the effects of market volatilities on Lincoln Electric 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 Lincoln Electric with a short position of ServiceNow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lincoln Electric and ServiceNow.
Diversification Opportunities for Lincoln Electric and ServiceNow
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lincoln and ServiceNow is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lincoln Electric Holdings and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Lincoln Electric 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 Lincoln Electric Holdings 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 Lincoln Electric i.e., Lincoln Electric and ServiceNow go up and down completely randomly.
Pair Corralation between Lincoln Electric and ServiceNow
Given the investment horizon of 90 days Lincoln Electric is expected to generate 2.88 times less return on investment than ServiceNow. But when comparing it to its historical volatility, Lincoln Electric Holdings is 1.18 times less risky than ServiceNow. It trades about 0.04 of its potential returns per unit of risk. ServiceNow is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 59,716 in ServiceNow on August 29, 2024 and sell it today you would earn a total of 44,424 from holding ServiceNow or generate 74.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lincoln Electric Holdings vs. ServiceNow
Performance |
| Timeline |
| Lincoln Electric Holdings |
| ServiceNow |
Lincoln Electric and ServiceNow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lincoln Electric and ServiceNow
The main advantage of trading using opposite Lincoln Electric and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lincoln Electric 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.| Lincoln Electric vs. Kennametal | Lincoln Electric vs. Toro Co | Lincoln Electric vs. Snap On | Lincoln Electric vs. RBC Bearings Incorporated |
| ServiceNow vs. Autodesk | ServiceNow vs. Intuit Inc | ServiceNow vs. Zoom Video Communications | ServiceNow vs. Snowflake |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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