Correlation Between Sonata Software and Bharti Airtel

Can any of the company-specific risk be diversified away by investing in both Sonata Software and Bharti Airtel 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 Bharti Airtel 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 Bharti Airtel Limited, you can compare the effects of market volatilities on Sonata Software and Bharti Airtel 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 Bharti Airtel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sonata Software and Bharti Airtel.

Diversification Opportunities for Sonata Software and Bharti Airtel

0.28

Correlation Coefficient

Sonata Software  Bharti Airtel

Modest diversification

The 3 months correlation between Sonata and Bharti is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Bharti Airtel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bharti Airtel Limited 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 Bharti Airtel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bharti Airtel Limited has no effect on the direction of Sonata Software i.e., Sonata Software and Bharti Airtel go up and down completely randomly.

Pair Corralation between Sonata Software and Bharti Airtel

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 1.25 times more return on investment than Bharti Airtel. However, Sonata Software is 1.25 times more volatile than Bharti Airtel Limited. It trades about 0.44 of its potential returns per unit of risk. Bharti Airtel Limited is currently generating about 0.12 per unit of risk. If you would invest  53,400  in Sonata Software Limited on September 21, 2024 and sell it today you would earn a total of  12,495  from holding Sonata Software Limited or generate 23.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Sonata Software Limited  vs.  Bharti Airtel Limited

Sonata Software

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonata Software Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Sonata Software is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Bharti Airtel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bharti Airtel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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.

Pair Trading with Sonata Software and Bharti Airtel

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

The idea behind Sonata Software Limited and Bharti Airtel 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.