Correlation Between Total Transport and Sonata Software

Can any of the company-specific risk be diversified away by investing in both Total Transport and Sonata Software 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 Total Transport and Sonata Software into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Total Transport Systems and Sonata Software Limited, you can compare the effects of market volatilities on Total Transport and Sonata Software 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 Total Transport with a short position of Sonata Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Transport and Sonata Software.

Diversification Opportunities for Total Transport and Sonata Software

0.08

Correlation Coefficient

Total Transport  Sonata Software

Significant diversification

The 3 months correlation between Total and Sonata is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Total Transport Systems and Sonata Software Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonata Software and Total Transport 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 Total Transport Systems are associated (or correlated) with Sonata Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonata Software has no effect on the direction of Total Transport i.e., Total Transport and Sonata Software go up and down completely randomly.

Pair Corralation between Total Transport and Sonata Software

Assuming the 90 days trading horizon Total Transport Systems is expected to generate 1.36 times more return on investment than Sonata Software. However, Total Transport is 1.36 times more volatile than Sonata Software Limited. It trades about -0.1 of its potential returns per unit of risk. Sonata Software Limited is currently generating about -0.19 per unit of risk. If you would invest  7,623  in Total Transport Systems on October 6, 2024 and sell it today you would lose (363.00) from holding Total Transport Systems or give up 4.76% of portfolio value over 90 days.

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

Total Transport Systems  vs.  Sonata Software Limited

Total Transport Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Total Transport Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 uncertain technical and fundamental indicators, Sonata Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Total Transport and Sonata Software

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

The idea behind Total Transport Systems and Sonata Software 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.