Correlation Between Sonata Software and Indian Hotels

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

Diversification Opportunities for Sonata Software and Indian Hotels

0.41

Correlation Coefficient

Sonata Software  Indian Hotels

Very weak diversification

The 3 months correlation between Sonata and Indian is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and The Indian Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Hotels 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 Indian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Hotels has no effect on the direction of Sonata Software i.e., Sonata Software and Indian Hotels go up and down completely randomly.

Pair Corralation between Sonata Software and Indian Hotels

Assuming the 90 days trading horizon Sonata Software is expected to generate 5.53 times less return on investment than Indian Hotels. In addition to that, Sonata Software is 1.28 times more volatile than The Indian Hotels. It trades about 0.04 of its total potential returns per unit of risk. The Indian Hotels is currently generating about 0.25 per unit of volatility. If you would invest  66,145  in The Indian Hotels on October 4, 2024 and sell it today you would earn a total of  21,805  from holding The Indian Hotels or generate 32.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Sonata Software Limited  vs.  The Indian Hotels

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

Indian Hotels

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Indian Hotels are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Indian Hotels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonata Software and Indian Hotels

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

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