Correlation Between ServiceNow and Xero
Can any of the company-specific risk be diversified away by investing in both ServiceNow and Xero 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 Xero into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ServiceNow and Xero Limited, you can compare the effects of market volatilities on ServiceNow and Xero 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 Xero. Check out your portfolio center. Please also check ongoing floating volatility patterns of ServiceNow and Xero.
Diversification Opportunities for ServiceNow and Xero
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ServiceNow and Xero is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Xero Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero Limited 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 Xero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xero Limited has no effect on the direction of ServiceNow i.e., ServiceNow and Xero go up and down completely randomly.
Pair Corralation between ServiceNow and Xero
Considering the 90-day investment horizon ServiceNow is expected to generate 1.52 times more return on investment than Xero. However, ServiceNow is 1.52 times more volatile than Xero Limited. It trades about 0.37 of its potential returns per unit of risk. Xero Limited is currently generating about 0.54 per unit of risk. If you would invest 93,299 in ServiceNow on September 1, 2024 and sell it today you would earn a total of 11,645 from holding ServiceNow or generate 12.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ServiceNow vs. Xero Limited
Performance |
| Timeline |
| ServiceNow |
| Xero Limited |
ServiceNow and Xero Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ServiceNow and Xero
The main advantage of trading using opposite ServiceNow and Xero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ServiceNow position performs unexpectedly, Xero 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 Xero will offset losses from the drop in Xero's long position.| ServiceNow vs. Datadog | ServiceNow vs. Gitlab Inc | ServiceNow vs. Atlassian Corp Plc | ServiceNow vs. HubSpot |
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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