Correlation Between Sonata Software and Welspun Investments

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

Diversification Opportunities for Sonata Software and Welspun Investments

0.71

Correlation Coefficient

Sonata Software  Welspun Investments

Poor diversification

The 3 months correlation between Sonata and Welspun is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sonata Software Limited and Welspun Investments and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welspun Investments and 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 Welspun Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welspun Investments and has no effect on the direction of Sonata Software i.e., Sonata Software and Welspun Investments go up and down completely randomly.

Pair Corralation between Sonata Software and Welspun Investments

Assuming the 90 days trading horizon Sonata Software Limited is expected to generate 0.96 times more return on investment than Welspun Investments. However, Sonata Software Limited is 1.04 times less risky than Welspun Investments. It trades about 0.11 of its potential returns per unit of risk. Welspun Investments and is currently generating about -0.06 per unit of risk. If you would invest  60,705  in Sonata Software Limited on September 5, 2024 and sell it today you would earn a total of  3,800  from holding Sonata Software Limited or generate 6.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Sonata Software Limited  vs.  Welspun Investments and

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.

Welspun Investments and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Welspun Investments and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sonata Software and Welspun Investments

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

The idea behind Sonata Software Limited and Welspun Investments and 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.