Correlation Between Sonata Software and Cambridge Technology

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

Diversification Opportunities for Sonata Software and Cambridge Technology

0.49

Correlation Coefficient

Sonata Software  Cambridge Technology

Very weak diversification

The 3 months correlation between Sonata and Cambridge is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Cambridge Technology Enterpris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambridge Technology 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 Cambridge Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambridge Technology has no effect on the direction of Sonata Software i.e., Sonata Software and Cambridge Technology go up and down completely randomly.

Pair Corralation between Sonata Software and Cambridge Technology

Assuming the 90 days trading horizon Sonata Software is expected to generate 12.99 times less return on investment than Cambridge Technology. But when comparing it to its historical volatility, Sonata Software Limited is 1.06 times less risky than Cambridge Technology. It trades about 0.01 of its potential returns per unit of risk. Cambridge Technology Enterprises is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,407  in Cambridge Technology Enterprises on September 16, 2024 and sell it today you would earn a total of  1,012  from holding Cambridge Technology Enterprises or generate 10.76% return on investment over 90 days.

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

Sonata Software Limited  vs.  Cambridge Technology Enterpris

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 current stock price disarray, may contribute to short-term losses for the investors.

Cambridge Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cambridge Technology Enterprises are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Cambridge Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sonata Software and Cambridge Technology

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

The idea behind Sonata Software Limited and Cambridge Technology Enterprises 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.