Correlation Between Sonata Software and Shaily Engineering

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

Diversification Opportunities for Sonata Software and Shaily Engineering

0.53

Correlation Coefficient

Sonata Software  Shaily Engineering

Very weak diversification

The 3 months correlation between Sonata and Shaily is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Shaily Engineering Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaily Engineering 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 Shaily Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaily Engineering has no effect on the direction of Sonata Software i.e., Sonata Software and Shaily Engineering go up and down completely randomly.

Pair Corralation between Sonata Software and Shaily Engineering

Assuming the 90 days trading horizon Sonata Software is expected to generate 2.66 times less return on investment than Shaily Engineering. But when comparing it to its historical volatility, Sonata Software Limited is 2.39 times less risky than Shaily Engineering. It trades about 0.05 of its potential returns per unit of risk. Shaily Engineering Plastics is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  30,617  in Shaily Engineering Plastics on October 15, 2024 and sell it today you would earn a total of  125,873  from holding Shaily Engineering Plastics or generate 411.12% return on investment over 90 days.

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

Sonata Software Limited  vs.  Shaily Engineering Plastics

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.

Shaily Engineering

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shaily Engineering Plastics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting forward indicators, Shaily Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonata Software and Shaily Engineering

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

The idea behind Sonata Software Limited and Shaily Engineering Plastics 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.