Correlation Between Sonata Software and Vedanta

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

Diversification Opportunities for Sonata Software and Vedanta

0.6

Correlation Coefficient

Sonata Software  Vedanta

Poor diversification

The 3 months correlation between Sonata and Vedanta is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Vedanta Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vedanta Limited 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 Vedanta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vedanta Limited has no effect on the direction of Sonata Software i.e., Sonata Software and Vedanta go up and down completely randomly.

Pair Corralation between Sonata Software and Vedanta

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 1.38 times more return on investment than Vedanta. However, Sonata Software is 1.38 times more volatile than Vedanta Limited. It trades about 0.07 of its potential returns per unit of risk. Vedanta Limited is currently generating about -0.05 per unit of risk. If you would invest  57,910  in Sonata Software Limited on October 8, 2024 and sell it today you would earn a total of  4,955  from holding Sonata Software Limited or generate 8.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Sonata Software Limited  vs.  Vedanta Limited

Sonata Software

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sonata Software Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, Sonata Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vedanta Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sonata Software and Vedanta

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

The idea behind Sonata Software Limited and Vedanta Limited 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.