Correlation Between Sonata Software and Kothari Petrochemicals

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

Diversification Opportunities for Sonata Software and Kothari Petrochemicals

0.9

Correlation Coefficient

Sonata Software  Kothari Petrochemicals

Almost no diversification

The 3 months correlation between Sonata and Kothari is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals 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 Kothari Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kothari Petrochemicals has no effect on the direction of Sonata Software i.e., Sonata Software and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Sonata Software and Kothari Petrochemicals

Assuming the 90 days trading horizon Sonata Software Limited is expected to under-perform the Kothari Petrochemicals. But the stock apears to be less risky and, when comparing its historical volatility, Sonata Software Limited is 1.29 times less risky than Kothari Petrochemicals. The stock trades about -0.28 of its potential returns per unit of risk. The Kothari Petrochemicals Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  18,611  in Kothari Petrochemicals Limited on December 29, 2024 and sell it today you would lose (2,869) from holding Kothari Petrochemicals Limited or give up 15.42% 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.  Kothari Petrochemicals Limited

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 uncertain 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.

Kothari Petrochemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Sonata Software and Kothari Petrochemicals

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

The idea behind Sonata Software Limited and Kothari Petrochemicals 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.

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 Valuation module to check real value of public entities based on technical and fundamental data.