Correlation Between XRP and Optimism

Can any of the company-specific risk be diversified away by investing in both XRP 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 XRP and Optimism into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between XRP and Optimism, you can compare the effects of market volatilities on XRP 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 XRP with a short position of Optimism. Check out your portfolio center. Please also check ongoing floating volatility patterns of XRP and Optimism.

Diversification Opportunities for XRP and Optimism

0.66

Correlation Coefficient

XRP  Optimism

Poor diversification

The 3 months correlation between XRP and Optimism is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding XRP and Optimism in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimism and XRP 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 XRP 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 XRP i.e., XRP and Optimism go up and down completely randomly.

Pair Corralation between XRP and Optimism

Assuming the 90 days trading horizon XRP is expected to generate 0.67 times more return on investment than Optimism. However, XRP is 1.5 times less risky than Optimism. It trades about -0.11 of its potential returns per unit of risk. Optimism is currently generating about -0.27 per unit of risk. If you would invest  63.00  in XRP on January 25, 2024 and sell it today you would lose (8.00) from holding XRP or give up 12.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

XRP  vs.  Optimism

XRP

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in XRP are ranked lower than 2 (%) 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.

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.

Pair Trading with XRP and Optimism

The main advantage of trading using opposite XRP and Optimism positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XRP 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 XRP 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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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.