Correlation Between Honest and Optimism

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

Diversification Opportunities for Honest and Optimism

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between Honest and Optimism is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Honest Company and Optimism in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimism and Honest 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 Honest Company 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 Honest i.e., Honest and Optimism go up and down completely randomly.

Pair Corralation between Honest and Optimism

Given the investment horizon of 90 days Honest Company is expected to under-perform the Optimism. But the stock apears to be less risky and, when comparing its historical volatility, Honest Company is 12.21 times less risky than Optimism. The stock trades about -0.06 of its potential returns per unit of risk. The Optimism is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Optimism on September 5, 2022 and sell it today you would earn a total of  104.00  from holding Optimism or generate 9.223372036854776E16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy96.89%
ValuesDaily Returns

Honest Company  vs.  Optimism

 Performance (%) 
       Timeline  
Honest Company 
Honest Performance
0 of 100
Over the last 90 days Honest Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2023. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Honest Price Channel

Optimism 
Optimism Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Optimism are ranked lower than 2 (%) 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

Honest and Optimism Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Honest and Optimism

The main advantage of trading using opposite Honest and Optimism positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honest 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.
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The idea behind Honest Company 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.
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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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