Correlation Between Optimism and XRP

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

Diversification Opportunities for Optimism and XRP

0.02
  Correlation Coefficient

Significant diversification

The 3 months correlation between Optimism and XRP is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP 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 XRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XRP has no effect on the direction of Optimism i.e., Optimism and XRP go up and down completely randomly.

Pair Corralation between Optimism and XRP

Assuming the 90 days horizon Optimism is expected to under-perform the XRP. In addition to that, Optimism is 1.01 times more volatile than XRP. It trades about -0.11 of its total potential returns per unit of risk. XRP is currently generating about 0.3 per unit of volatility. If you would invest  32.00  in XRP on July 6, 2022 and sell it today you would earn a total of  16.00  from holding XRP or generate 50.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Optimism  vs.  XRP

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

XRP Price Channel

Optimism and XRP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Optimism and XRP

The main advantage of trading using opposite Optimism and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optimism position performs unexpectedly, XRP 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 XRP will offset losses from the drop in XRP's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Optimism as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Optimism's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Optimism's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Optimism.
The idea behind Optimism and XRP 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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