Correlation Between Optimism and Avalanche

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Can any of the company-specific risk be diversified away by investing in both Optimism and Avalanche 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 Optimism and Avalanche into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Optimism and Avalanche, you can compare the effects of market volatilities on Optimism and Avalanche 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 Optimism with a short position of Avalanche. Check out your portfolio center. Please also check ongoing floating volatility patterns of Optimism and Avalanche.

Diversification Opportunities for Optimism and Avalanche

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Optimism and Avalanche is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and Avalanche in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalanche and Optimism 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 Optimism are associated (or correlated) with Avalanche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalanche has no effect on the direction of Optimism i.e., Optimism and Avalanche go up and down completely randomly.

Pair Corralation between Optimism and Avalanche

Assuming the 90 days horizon Optimism is expected to under-perform the Avalanche. In addition to that, Optimism is 1.9 times more volatile than Avalanche. It trades about -0.14 of its total potential returns per unit of risk. Avalanche is currently generating about -0.1 per unit of volatility. If you would invest  1,890  in Avalanche on July 4, 2022 and sell it today you would lose (187.00)  from holding Avalanche or give up 9.89% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Optimism  vs.  Avalanche

 Performance (%) 
       Timeline  
Optimism 
Optimism Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Optimism are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Optimism sustained solid returns over the last few months and may actually be approaching a breakup point.

Optimism Price Channel

Avalanche 
Avalanche Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avalanche is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Avalanche Price Channel

Optimism and Avalanche Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Optimism and Avalanche

The main advantage of trading using opposite Optimism and Avalanche positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optimism position performs unexpectedly, Avalanche 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 Avalanche will offset losses from the drop in Avalanche's long position.
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The idea behind Optimism and Avalanche 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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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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