Correlation Between ServiceNow and Aspen Technology

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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

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between ServiceNow and Aspen is -0.17. 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 generate 1.47 times more return on investment than Aspen Technology. However, ServiceNow is 1.47 times more volatile than Aspen Technology. It trades about 0.4 of its potential returns per unit of risk. Aspen Technology is currently generating about 0.03 per unit of risk. If you would invest  38,550  in ServiceNow on November 4, 2022 and sell it today you would earn a total of  10,688  from holding ServiceNow or generate 27.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ServiceNow  vs.  Aspen Technology

 Performance (%) 
       Timeline  
ServiceNow 
ServiceNow Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, ServiceNow showed solid returns over the last few months and may actually be approaching a breakup point.

ServiceNow Price Channel

Aspen Technology 
Aspen Performance
0 of 100
Over the last 90 days Aspen Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Aspen Price Channel

ServiceNow and Aspen Technology Volatility Contrast

   Predicted Return Density   
       Returns  

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.
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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.
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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