Correlation Between Sonata Software and MphasiS

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

Diversification Opportunities for Sonata Software and MphasiS

0.72

Correlation Coefficient

Sonata Software  MphasiS

Poor diversification

The 3 months correlation between Sonata and MphasiS is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and MphasiS Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MphasiS Limited 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 MphasiS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MphasiS Limited has no effect on the direction of Sonata Software i.e., Sonata Software and MphasiS go up and down completely randomly.

Pair Corralation between Sonata Software and MphasiS

Assuming the 90 days trading horizon Sonata Software is expected to generate 6.46 times less return on investment than MphasiS. In addition to that, Sonata Software is 1.19 times more volatile than MphasiS Limited. It trades about 0.0 of its total potential returns per unit of risk. MphasiS Limited is currently generating about 0.03 per unit of volatility. If you would invest  309,805  in MphasiS Limited on September 12, 2024 and sell it today you would earn a total of  8,375  from holding MphasiS Limited or generate 2.7% return on investment over 90 days.

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

Sonata Software Limited  vs.  MphasiS Limited

Sonata Software

Risk-Adjusted Performance

0 of 100

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 very healthy technical and fundamental indicators, Sonata Software is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

MphasiS Limited

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MphasiS Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, MphasiS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sonata Software and MphasiS

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

The idea behind Sonata Software Limited and MphasiS 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.