Correlation Between Sonata Software and IOL Chemicals

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

Diversification Opportunities for Sonata Software and IOL Chemicals

0.94

Correlation Coefficient

Sonata Software  IOL Chemicals

Almost no diversification

The 3 months correlation between Sonata and IOL is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and IOL Chemicals and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IOL Chemicals 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 IOL Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IOL Chemicals has no effect on the direction of Sonata Software i.e., Sonata Software and IOL Chemicals go up and down completely randomly.

Pair Corralation between Sonata Software and IOL Chemicals

Assuming the 90 days trading horizon Sonata Software Limited is expected to under-perform the IOL Chemicals. In addition to that, Sonata Software is 1.11 times more volatile than IOL Chemicals and. It trades about -0.25 of its total potential returns per unit of risk. IOL Chemicals and is currently generating about -0.13 per unit of volatility. If you would invest  8,129  in IOL Chemicals and on December 25, 2024 and sell it today you would lose (1,649) from holding IOL Chemicals and or give up 20.29% of portfolio value over 90 days.

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

Sonata Software Limited  vs.  IOL Chemicals and

Sonata Software

Risk-Adjusted Performance

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 inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

IOL Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days IOL Chemicals and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sonata Software and IOL Chemicals

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

The idea behind Sonata Software Limited and IOL Chemicals and 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.