Correlation Between UltraTech Cement and Sonata Software

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

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

Diversification Opportunities for UltraTech Cement and Sonata Software

0.78

Correlation Coefficient

UltraTech Cement  Sonata Software

Poor diversification

The 3 months correlation between UltraTech and Sonata is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding UltraTech Cement Limited and Sonata Software Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonata Software and UltraTech Cement 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 UltraTech Cement Limited 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 UltraTech Cement i.e., UltraTech Cement and Sonata Software go up and down completely randomly.

Pair Corralation between UltraTech Cement and Sonata Software

Assuming the 90 days trading horizon UltraTech Cement Limited is expected to generate 0.65 times more return on investment than Sonata Software. However, UltraTech Cement Limited is 1.53 times less risky than Sonata Software. It trades about -0.01 of its potential returns per unit of risk. Sonata Software Limited is currently generating about -0.05 per unit of risk. If you would invest  1,075,000  in UltraTech Cement Limited on October 23, 2024 and sell it today you would lose (12,555) from holding UltraTech Cement Limited or give up 1.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

UltraTech Cement Limited  vs.  Sonata Software Limited

UltraTech Cement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UltraTech Cement Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, UltraTech Cement is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest unsteady performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with UltraTech Cement and Sonata Software

The main advantage of trading using opposite UltraTech Cement and Sonata Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UltraTech Cement 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 UltraTech Cement Limited 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.