Correlation Between Sonata Software and UTI Asset

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

Diversification Opportunities for Sonata Software and UTI Asset

0.42

Correlation Coefficient

Sonata Software  UTI Asset

Very weak diversification

The 3 months correlation between Sonata and UTI is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and UTI Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UTI Asset Management 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 UTI Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UTI Asset Management has no effect on the direction of Sonata Software i.e., Sonata Software and UTI Asset go up and down completely randomly.

Pair Corralation between Sonata Software and UTI Asset

Assuming the 90 days trading horizon Sonata Software Limited is expected to under-perform the UTI Asset. But the stock apears to be less risky and, when comparing its historical volatility, Sonata Software Limited is 1.87 times less risky than UTI Asset. The stock trades about -0.23 of its potential returns per unit of risk. The UTI Asset Management is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  136,615  in UTI Asset Management on October 10, 2024 and sell it today you would lose (6,995) from holding UTI Asset Management or give up 5.12% of portfolio value over 90 days.

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

Sonata Software Limited  vs.  UTI Asset Management

Sonata Software

Risk-Adjusted Performance

4 of 100

Insignificant

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.

UTI Asset Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UTI Asset Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, UTI Asset may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sonata Software and UTI Asset

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

The idea behind Sonata Software Limited and UTI Asset Management 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.