Correlation Between Uniswap Protocol and Optimism

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

Diversification Opportunities for Uniswap Protocol and Optimism

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Uniswap and Optimism is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Uniswap Protocol Token and Optimism in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimism and Uniswap Protocol 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 Uniswap Protocol Token are associated (or correlated) with Optimism. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimism has no effect on the direction of Uniswap Protocol i.e., Uniswap Protocol and Optimism go up and down completely randomly.

Pair Corralation between Uniswap Protocol and Optimism

Assuming the 90 days trading horizon Uniswap Protocol is expected to generate 40.39 times less return on investment than Optimism. But when comparing it to its historical volatility, Uniswap Protocol Token is 19.7 times less risky than Optimism. It trades about 0.07 of its potential returns per unit of risk. Optimism is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Optimism on June 29, 2022 and sell it today you would earn a total of  113.00  from holding Optimism or generate 9.223372036854776E16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy98.31%
ValuesDaily Returns

Uniswap Protocol Token  vs.  Optimism

 Performance (%) 
       Timeline  
Uniswap Protocol Token 
Uniswap Performance
0 of 100
Over the last 90 days Uniswap Protocol Token has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Uniswap Protocol sustained solid returns over the last few months and may actually be approaching a breakup point.
Optimism 
Optimism Performance
0 of 100
Over the last 90 days Optimism has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Optimism sustained solid returns over the last few months and may actually be approaching a breakup point.

Uniswap Protocol and Optimism Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Uniswap Protocol and Optimism

The main advantage of trading using opposite Uniswap Protocol and Optimism positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Uniswap Protocol position performs unexpectedly, Optimism 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 Optimism will offset losses from the drop in Optimism's long position.
The idea behind Uniswap Protocol Token and Optimism 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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