Correlation Between ServiceNow and Aspen Technology

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

By analyzing existing cross correlation between ServiceNow and Aspen Technology, you can compare the effects of market volatilities on ServiceNow and Aspen Technology 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 Aspen Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of ServiceNow and Aspen Technology.

Diversification Opportunities for ServiceNow and Aspen Technology

-0.09

Correlation Coefficient

ServiceNow  Aspen Technology

Good diversification

The 3 months correlation between ServiceNow and Aspen is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Aspen Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Technology 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 Aspen Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Technology has no effect on the direction of ServiceNow i.e., ServiceNow and Aspen Technology go up and down completely randomly.

Pair Corralation between ServiceNow and Aspen Technology

Considering the 90-day investment horizon ServiceNow is expected to under-perform the Aspen Technology. But the stock apears to be less risky and, when comparing its historical volatility, ServiceNow is 1.19 times less risky than Aspen Technology. The stock trades about -0.14 of its potential returns per unit of risk. The Aspen Technology is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  19,997  in Aspen Technology on January 20, 2024 and sell it today you would lose (338.00) from holding Aspen Technology or give up 1.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

ServiceNow  vs.  Aspen Technology

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.

Aspen Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Aspen Technology is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ServiceNow and Aspen Technology

The main advantage of trading using opposite ServiceNow and Aspen Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ServiceNow position performs unexpectedly, Aspen Technology 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 Aspen Technology will offset losses from the drop in Aspen Technology's long position.

The idea behind ServiceNow and Aspen Technology 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.