Correlation Between Sonata Software and LT Technology

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

Diversification Opportunities for Sonata Software and LT Technology

0.27

Correlation Coefficient

Sonata Software  LT Technology

Modest diversification

The 3 months correlation between Sonata and LTTS is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and LT Technology Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT Technology Services 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 LT Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Technology Services has no effect on the direction of Sonata Software i.e., Sonata Software and LT Technology go up and down completely randomly.

Pair Corralation between Sonata Software and LT Technology

Assuming the 90 days trading horizon Sonata Software Limited is expected to under-perform the LT Technology. In addition to that, Sonata Software is 1.22 times more volatile than LT Technology Services. It trades about -0.34 of its total potential returns per unit of risk. LT Technology Services is currently generating about -0.1 per unit of volatility. If you would invest  533,640  in LT Technology Services on December 5, 2024 and sell it today you would lose (76,990) from holding LT Technology Services or give up 14.43% of portfolio value over 90 days.

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

Sonata Software Limited  vs.  LT Technology Services

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.

LT Technology Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days LT Technology Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Sonata Software and LT Technology

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

The idea behind Sonata Software Limited and LT Technology Services 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.