Correlation Between Air Canada and ServiceNow

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

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

Diversification Opportunities for Air Canada and ServiceNow

-0.34

Correlation Coefficient

Air Canada  ServiceNow

Very good diversification

The 3 months correlation between Air and ServiceNow is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Air Canada 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 Air Canada 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 Air Canada i.e., Air Canada and ServiceNow go up and down completely randomly.

Pair Corralation between Air Canada and ServiceNow

Assuming the 90 days horizon Air Canada is expected to generate 1.24 times more return on investment than ServiceNow. However, Air Canada is 1.24 times more volatile than ServiceNow. It trades about -0.1 of its potential returns per unit of risk. ServiceNow is currently generating about -0.2 per unit of risk. If you would invest  1,457  in Air Canada on February 5, 2024 and sell it today you would lose (85.00) from holding Air Canada or give up 5.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Air Canada  vs.  ServiceNow

Air Canada

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Air Canada is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ServiceNow

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ServiceNow has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Air Canada and ServiceNow

The main advantage of trading using opposite Air Canada and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Canada 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 Air Canada 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..