Correlation Between Sonata Software and Tamilnad Mercantile

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

Diversification Opportunities for Sonata Software and Tamilnad Mercantile

0.67

Correlation Coefficient

Sonata Software  Tamilnad Mercantile

Poor diversification

The 3 months correlation between Sonata and Tamilnad is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Tamilnad Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tamilnad Mercantile Bank 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 Tamilnad Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tamilnad Mercantile Bank has no effect on the direction of Sonata Software i.e., Sonata Software and Tamilnad Mercantile go up and down completely randomly.

Pair Corralation between Sonata Software and Tamilnad Mercantile

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 2.05 times more return on investment than Tamilnad Mercantile. However, Sonata Software is 2.05 times more volatile than Tamilnad Mercantile Bank. It trades about 0.0 of its potential returns per unit of risk. Tamilnad Mercantile Bank is currently generating about -0.01 per unit of risk. If you would invest  70,065  in Sonata Software Limited on September 4, 2024 and sell it today you would lose (5,560) from holding Sonata Software Limited or give up 7.94% of portfolio value over 90 days.

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

Sonata Software Limited  vs.  Tamilnad Mercantile Bank

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.

Tamilnad Mercantile Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tamilnad Mercantile Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Tamilnad Mercantile is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sonata Software and Tamilnad Mercantile

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

The idea behind Sonata Software Limited and Tamilnad Mercantile Bank 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.