Correlation Between Sonata Software and S P

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

Diversification Opportunities for Sonata Software and S P

0.77

Correlation Coefficient

Sonata Software  S P

Poor diversification

The 3 months correlation between Sonata and SPAL is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and S P Apparels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on S P Apparels 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 S P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of S P Apparels has no effect on the direction of Sonata Software i.e., Sonata Software and S P go up and down completely randomly.

Pair Corralation between Sonata Software and S P

Assuming the 90 days trading horizon Sonata Software is expected to generate 2.4 times less return on investment than S P. But when comparing it to its historical volatility, Sonata Software Limited is 1.35 times less risky than S P. It trades about 0.05 of its potential returns per unit of risk. S P Apparels is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  68,010  in S P Apparels on September 19, 2024 and sell it today you would earn a total of  24,735  from holding S P Apparels or generate 36.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.19%
Values	Daily Returns

Sonata Software Limited  vs.  S P Apparels

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

S P Apparels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days S P Apparels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, S P is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sonata Software and S P

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

The idea behind Sonata Software Limited and S P Apparels 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.