Correlation Between Sonata Software and Bombay Burmah

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

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

Diversification Opportunities for Sonata Software and Bombay Burmah

-0.33

Correlation Coefficient

Sonata Software  Bombay Burmah

Very good diversification

The 3 months correlation between Sonata and Bombay is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Bombay Burmah Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bombay Burmah Trading and Sonata Software 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 Sonata Software Limited are associated (or correlated) with Bombay Burmah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bombay Burmah Trading has no effect on the direction of Sonata Software i.e., Sonata Software and Bombay Burmah go up and down completely randomly.

Pair Corralation between Sonata Software and Bombay Burmah

Assuming the 90 days trading horizon Sonata Software Limited is expected to under-perform the Bombay Burmah. But the stock apears to be less risky and, when comparing its historical volatility, Sonata Software Limited is 1.17 times less risky than Bombay Burmah. The stock trades about -0.02 of its potential returns per unit of risk. The Bombay Burmah Trading is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  165,322  in Bombay Burmah Trading on October 9, 2024 and sell it today you would earn a total of  41,078  from holding Bombay Burmah Trading or generate 24.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Sonata Software Limited  vs.  Bombay Burmah Trading

Sonata Software

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sonata Software Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Sonata Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Bombay Burmah Trading

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bombay Burmah Trading has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Sonata Software and Bombay Burmah

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

The idea behind Sonata Software Limited and Bombay Burmah Trading 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.