Correlation Between Sonata Software and California Software

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

Diversification Opportunities for Sonata Software and California Software

0.82

Correlation Coefficient

Sonata Software  California Software

Very poor diversification

The 3 months correlation between Sonata and California is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and California Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Software 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 California Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Software has no effect on the direction of Sonata Software i.e., Sonata Software and California Software go up and down completely randomly.

Pair Corralation between Sonata Software and California Software

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 0.75 times more return on investment than California Software. However, Sonata Software Limited is 1.33 times less risky than California Software. It trades about -0.03 of its potential returns per unit of risk. California Software is currently generating about -0.03 per unit of risk. If you would invest  66,500  in Sonata Software Limited on September 2, 2024 and sell it today you would lose (3,910) from holding Sonata Software Limited or give up 5.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Sonata Software Limited  vs.  California Software

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.

California Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, California Software is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sonata Software and California Software

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

The idea behind Sonata Software Limited and California Software 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.