Correlation Between Aditya Birla and Sonata Software

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

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

Diversification Opportunities for Aditya Birla and Sonata Software

0.8

Correlation Coefficient

Aditya Birla  Sonata Software

Very poor diversification

The 3 months correlation between Aditya and Sonata is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Aditya Birla Sun and Sonata Software Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonata Software and Aditya Birla 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 Aditya Birla Sun are associated (or correlated) with Sonata Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonata Software has no effect on the direction of Aditya Birla i.e., Aditya Birla and Sonata Software go up and down completely randomly.

Pair Corralation between Aditya Birla and Sonata Software

Assuming the 90 days trading horizon Aditya Birla Sun is expected to generate 0.96 times more return on investment than Sonata Software. However, Aditya Birla Sun is 1.04 times less risky than Sonata Software. It trades about -0.2 of its potential returns per unit of risk. Sonata Software Limited is currently generating about -0.32 per unit of risk. If you would invest  87,540  in Aditya Birla Sun on December 2, 2024 and sell it today you would lose (25,990) from holding Aditya Birla Sun or give up 29.69% of portfolio value over 90 days.

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

Aditya Birla Sun  vs.  Sonata Software Limited

Aditya Birla Sun

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aditya Birla Sun has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sonata Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonata Software Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Aditya Birla and Sonata Software

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

The idea behind Aditya Birla Sun and Sonata Software Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.