Correlation Between ServiceNow and Dassault Systemes

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

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

Diversification Opportunities for ServiceNow and Dassault Systemes

0.35

Correlation Coefficient

ServiceNow  Dassault Systemes

Weak diversification

The 3 months correlation between ServiceNow and Dassault is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding ServiceNow and Dassault Systemes SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dassault Systemes 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 Dassault Systemes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dassault Systemes has no effect on the direction of ServiceNow i.e., ServiceNow and Dassault Systemes go up and down completely randomly.

Pair Corralation between ServiceNow and Dassault Systemes

Considering the 90-day investment horizon ServiceNow is expected to generate 0.77 times more return on investment than Dassault Systemes. However, ServiceNow is 1.3 times less risky than Dassault Systemes. It trades about -0.09 of its potential returns per unit of risk. Dassault Systemes SE is currently generating about -0.19 per unit of risk. If you would invest  77,464  in ServiceNow on January 25, 2024 and sell it today you would lose (2,835) from holding ServiceNow or give up 3.66% of portfolio value over 90 days.

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

ServiceNow  vs.  Dassault Systemes SE

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Dassault Systemes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dassault Systemes SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ServiceNow and Dassault Systemes

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

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