Correlation Between Sonata Software and Oil India

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

Diversification Opportunities for Sonata Software and Oil India

0.82

Correlation Coefficient

Sonata Software  Oil India

Very poor diversification

The 3 months correlation between Sonata and Oil is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Oil India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil India 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 Oil India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil India Limited has no effect on the direction of Sonata Software i.e., Sonata Software and Oil India go up and down completely randomly.

Pair Corralation between Sonata Software and Oil India

Assuming the 90 days trading horizon Sonata Software Limited is expected to under-perform the Oil India. But the stock apears to be less risky and, when comparing its historical volatility, Sonata Software Limited is 1.01 times less risky than Oil India. The stock trades about -0.25 of its potential returns per unit of risk. The Oil India Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  41,808  in Oil India Limited on December 24, 2024 and sell it today you would lose (2,448) from holding Oil India Limited or give up 5.86% of portfolio value over 90 days.

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

Sonata Software Limited  vs.  Oil India 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 conflicting 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.

Oil India Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oil India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Oil India 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 Oil India

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

The idea behind Sonata Software Limited and Oil India 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.