Correlation Between ServiceNow and Salesforce

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

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

Diversification Opportunities for ServiceNow and Salesforce

0.53

Correlation Coefficient

ServiceNow  Salesforce

Very weak diversification

The 3 months correlation between ServiceNow and Salesforce is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of ServiceNow i.e., ServiceNow and Salesforce go up and down completely randomly.

Pair Corralation between ServiceNow and Salesforce

Considering the 90-day investment horizon ServiceNow is expected to generate 0.97 times more return on investment than Salesforce. However, ServiceNow is 1.03 times less risky than Salesforce. It trades about -0.23 of its potential returns per unit of risk. Salesforce is currently generating about -0.25 per unit of risk. If you would invest  76,837  in ServiceNow on February 1, 2024 and sell it today you would lose (7,504) from holding ServiceNow or give up 9.77% of portfolio value over 90 days.

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

ServiceNow  vs.  Salesforce

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.

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ServiceNow and Salesforce

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

The idea behind ServiceNow and Salesforce 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .