Correlation Between Polygon and Optimism

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

Diversification Opportunities for Polygon and Optimism

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Polygon and Optimism is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and Optimism in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimism and Polygon 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 Polygon 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 Polygon i.e., Polygon and Optimism go up and down completely randomly.

Pair Corralation between Polygon and Optimism

Assuming the 90 days trading horizon Polygon is expected to generate 0.63 times more return on investment than Optimism. However, Polygon is 1.59 times less risky than Optimism. It trades about 0.04 of its potential returns per unit of risk. Optimism is currently generating about -0.11 per unit of risk. If you would invest  82.00  in Polygon on July 6, 2022 and sell it today you would earn a total of  1.00  from holding Polygon or generate 1.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Polygon  vs.  Optimism

 Performance (%) 
       Timeline  
Polygon 
Polygon Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Polygon are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Polygon sustained solid returns over the last few months and may actually be approaching a breakup point.

Polygon Price Channel

Optimism 
Optimism Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Optimism are ranked lower than 8 (%) 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

Polygon and Optimism Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Polygon and Optimism

The main advantage of trading using opposite Polygon and Optimism positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polygon 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 Polygon 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.
Optimism vs. XRP
Optimism vs. Solana
Optimism vs. Polkadot
Optimism vs. Chainlink
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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