Correlation Between Optimism and XRP

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

0.65

Correlation Coefficient

Optimism  XRP

Poor diversification

The 3 months correlation between Optimism and XRP is 0.65. 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 1.52 times more volatile than XRP. It trades about -0.27 of its total potential returns per unit of risk. XRP is currently generating about -0.1 per unit of volatility. If you would invest  63.00  in XRP on January 25, 2024 and sell it today you would lose (7.00) from holding XRP or give up 11.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Optimism  vs.  XRP

Optimism

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optimism has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Optimism shareholders.

XRP

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XRP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XRP may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 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.

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 the Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.