Correlation Between Optimism and COV

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

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

Diversification Opportunities for Optimism and COV

0.7

Correlation Coefficient

Optimism  COV

Poor diversification

The 3 months correlation between Optimism and COV is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and COV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COV 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 COV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COV has no effect on the direction of Optimism i.e., Optimism and COV go up and down completely randomly.

Pair Corralation between Optimism and COV

Assuming the 90 days horizon Optimism is expected to under-perform the COV. In addition to that, Optimism is 1.88 times more volatile than COV. It trades about -0.22 of its total potential returns per unit of risk. COV is currently generating about -0.04 per unit of volatility. If you would invest  35.00  in COV on December 29, 2024 and sell it today you would lose (3.00) from holding COV or give up 8.57% of portfolio value over 90 days.

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

Optimism  vs.  COV

Optimism

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Optimism shareholders.

COV

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Optimism and COV

The main advantage of trading using opposite Optimism and COV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optimism position performs unexpectedly, COV 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 COV will offset losses from the drop in COV's long position.

The idea behind Optimism and COV 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.