Correlation Between Sonata Software and ICICI Bank

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

Diversification Opportunities for Sonata Software and ICICI Bank

0.64

Correlation Coefficient

Sonata Software  ICICI Bank

Poor diversification

The 3 months correlation between Sonata and ICICI is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and ICICI Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICICI Bank 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 ICICI Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICICI Bank Limited has no effect on the direction of Sonata Software i.e., Sonata Software and ICICI Bank go up and down completely randomly.

Pair Corralation between Sonata Software and ICICI Bank

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 2.66 times more return on investment than ICICI Bank. However, Sonata Software is 2.66 times more volatile than ICICI Bank Limited. It trades about 0.29 of its potential returns per unit of risk. ICICI Bank Limited is currently generating about 0.04 per unit of risk. If you would invest  54,820  in Sonata Software Limited on September 23, 2024 and sell it today you would earn a total of  8,750  from holding Sonata Software Limited or generate 15.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Sonata Software Limited  vs.  ICICI Bank Limited

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.

ICICI Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICICI Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ICICI Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sonata Software and ICICI Bank

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

The idea behind Sonata Software Limited and ICICI Bank 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.