Correlation Between Dassault Systemes and ServiceNow

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

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

Diversification Opportunities for Dassault Systemes and ServiceNow

0.08

Correlation Coefficient

Dassault Systemes  ServiceNow

Significant diversification

The 3 months correlation between Dassault and ServiceNow is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dassault Systemes SA and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Dassault Systemes 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 Dassault Systemes SA 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 Dassault Systemes i.e., Dassault Systemes and ServiceNow go up and down completely randomly.

Pair Corralation between Dassault Systemes and ServiceNow

Assuming the 90 days horizon Dassault Systemes SA is expected to under-perform the ServiceNow. But the pink sheet apears to be less risky and, when comparing its historical volatility, Dassault Systemes SA is 1.25 times less risky than ServiceNow. The pink sheet trades about -0.39 of its potential returns per unit of risk. The ServiceNow is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  76,756  in ServiceNow on January 20, 2024 and sell it today you would lose (3,620) from holding ServiceNow or give up 4.72% of portfolio value over 90 days.

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

Dassault Systemes SA  vs.  ServiceNow

Dassault Systemes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dassault Systemes SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

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 fairly stable basic indicators, ServiceNow is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Dassault Systemes and ServiceNow

The main advantage of trading using opposite Dassault Systemes and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dassault Systemes 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 Dassault Systemes SA 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.