Correlation Between Sonata Software and Reliance Industries

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

Diversification Opportunities for Sonata Software and Reliance Industries

-0.04

Correlation Coefficient

Sonata Software  Reliance Industries

Good diversification

The 3 months correlation between Sonata and Reliance is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Reliance Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industries 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 Reliance Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Industries has no effect on the direction of Sonata Software i.e., Sonata Software and Reliance Industries go up and down completely randomly.

Pair Corralation between Sonata Software and Reliance Industries

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 1.92 times more return on investment than Reliance Industries. However, Sonata Software is 1.92 times more volatile than Reliance Industries Limited. It trades about 0.06 of its potential returns per unit of risk. Reliance Industries Limited is currently generating about -0.12 per unit of risk. If you would invest  57,700  in Sonata Software Limited on October 9, 2024 and sell it today you would earn a total of  4,185  from holding Sonata Software Limited or generate 7.25% return on investment over 90 days.

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

Sonata Software Limited  vs.  Reliance Industries Limited

Sonata Software

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sonata Software Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Sonata Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Reliance Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Sonata Software and Reliance Industries

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

The idea behind Sonata Software Limited and Reliance Industries 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.