Correlation Between Trade Desk and ServiceNow

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

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

Diversification Opportunities for Trade Desk and ServiceNow

0.91

Correlation Coefficient

Trade Desk  ServiceNow

Almost no diversification

The 3 months correlation between Trade and ServiceNow is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Trade Desk and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow and Trade Desk 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 Trade Desk 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 Trade Desk i.e., Trade Desk and ServiceNow go up and down completely randomly.

Pair Corralation between Trade Desk and ServiceNow

Considering the 90-day investment horizon Trade Desk is expected to generate 1.13 times less return on investment than ServiceNow. In addition to that, Trade Desk is 1.21 times more volatile than ServiceNow. It trades about 0.17 of its total potential returns per unit of risk. ServiceNow is currently generating about 0.23 per unit of volatility. If you would invest  82,786  in ServiceNow on August 24, 2024 and sell it today you would earn a total of  21,919  from holding ServiceNow or generate 26.48% return on investment over 90 days.

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

Trade Desk  vs.  ServiceNow

Trade Desk

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trade Desk are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Trade Desk exhibited solid returns over the last few months and may actually be approaching a breakup point.

ServiceNow

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ServiceNow are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, ServiceNow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trade Desk and ServiceNow

The main advantage of trading using opposite Trade Desk and ServiceNow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trade Desk 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 Trade Desk 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.