Correlation Between Shopify and ServiceNow

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

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

Diversification Opportunities for Shopify and ServiceNow

0.3

Correlation Coefficient

Shopify  ServiceNow

Weak diversification

The 3 months correlation between Shopify and ServiceNow is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Shopify and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Shopify 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 Shopify 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 Shopify i.e., Shopify and ServiceNow go up and down completely randomly.

Pair Corralation between Shopify and ServiceNow

Given the investment horizon of 90 days Shopify is expected to generate 1.93 times more return on investment than ServiceNow. However, Shopify is 1.93 times more volatile than ServiceNow. It trades about 0.06 of its potential returns per unit of risk. ServiceNow is currently generating about 0.11 per unit of risk. If you would invest  4,802  in Shopify on January 17, 2024 and sell it today you would earn a total of  2,055  from holding Shopify or generate 42.79% return on investment over 90 days.

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

Shopify  vs.  ServiceNow

Shopify

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

ServiceNow

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Shopify and ServiceNow

The main advantage of trading using opposite Shopify and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shopify 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 Shopify 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.