Correlation Between Sonata Software and Reliance Industrial

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

Diversification Opportunities for Sonata Software and Reliance Industrial

0.55

Correlation Coefficient

Sonata Software  Reliance Industrial

Very weak diversification

The 3 months correlation between Sonata and Reliance is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Reliance Industrial Infrastruc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Industrial 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 Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Industrial has no effect on the direction of Sonata Software i.e., Sonata Software and Reliance Industrial go up and down completely randomly.

Pair Corralation between Sonata Software and Reliance Industrial

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 0.89 times more return on investment than Reliance Industrial. However, Sonata Software Limited is 1.12 times less risky than Reliance Industrial. It trades about 0.0 of its potential returns per unit of risk. Reliance Industrial Infrastructure is currently generating about -0.01 per unit of risk. If you would invest  70,214  in Sonata Software Limited on October 6, 2024 and sell it today you would lose (7,349) from holding Sonata Software Limited or give up 10.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.59%
Values	Daily Returns

Sonata Software Limited  vs.  Reliance Industrial Infrastruc

Sonata Software

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sonata Software Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Sonata Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Reliance Industrial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Industrial Infrastructure are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Reliance Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sonata Software and Reliance Industrial

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

The idea behind Sonata Software Limited and Reliance Industrial Infrastructure 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.