Correlation Between Sonata Software and ILFS Investment

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

Diversification Opportunities for Sonata Software and ILFS Investment

0.54

Correlation Coefficient

Sonata Software  ILFS Investment

Very weak diversification

The 3 months correlation between Sonata and ILFS is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and ILFS Investment Managers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ILFS Investment Managers 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 ILFS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ILFS Investment Managers has no effect on the direction of Sonata Software i.e., Sonata Software and ILFS Investment go up and down completely randomly.

Pair Corralation between Sonata Software and ILFS Investment

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 1.05 times more return on investment than ILFS Investment. However, Sonata Software is 1.05 times more volatile than ILFS Investment Managers. It trades about 0.41 of its potential returns per unit of risk. ILFS Investment Managers is currently generating about 0.14 per unit of risk. If you would invest  54,445  in Sonata Software Limited on September 20, 2024 and sell it today you would earn a total of  12,165  from holding Sonata Software Limited or generate 22.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Sonata Software Limited  vs.  ILFS Investment Managers

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.

ILFS Investment Managers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ILFS Investment Managers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, ILFS Investment is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sonata Software and ILFS Investment

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

The idea behind Sonata Software Limited and ILFS Investment Managers 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.