Correlation Between Ratnamani Metals and Sonata Software

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

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

Diversification Opportunities for Ratnamani Metals and Sonata Software

-0.3

Correlation Coefficient

Ratnamani Metals  Sonata Software

Very good diversification

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

Pair Corralation between Ratnamani Metals and Sonata Software

Assuming the 90 days trading horizon Ratnamani Metals Tubes is expected to under-perform the Sonata Software. But the stock apears to be less risky and, when comparing its historical volatility, Ratnamani Metals Tubes is 1.5 times less risky than Sonata Software. The stock trades about -0.13 of its potential returns per unit of risk. The Sonata Software Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  67,520  in Sonata Software Limited on October 3, 2024 and sell it today you would lose (7,580) from holding Sonata Software Limited or give up 11.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.8%
Values	Daily Returns

Ratnamani Metals Tubes  vs.  Sonata Software Limited

Ratnamani Metals Tubes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ratnamani Metals Tubes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sonata Software

Risk-Adjusted Performance

0 of 100

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 very healthy technical and fundamental indicators, Sonata Software is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ratnamani Metals and Sonata Software

The main advantage of trading using opposite Ratnamani Metals and Sonata Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ratnamani Metals 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 Ratnamani Metals Tubes 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.