Correlation Between Optimism and STEPN

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

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

Diversification Opportunities for Optimism and STEPN

0.86

Correlation Coefficient

Optimism  STEPN

Very poor diversification

The 3 months correlation between Optimism and STEPN is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and STEPN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEPN 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 STEPN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEPN has no effect on the direction of Optimism i.e., Optimism and STEPN go up and down completely randomly.

Pair Corralation between Optimism and STEPN

Assuming the 90 days horizon Optimism is expected to generate 1.1 times less return on investment than STEPN. But when comparing it to its historical volatility, Optimism is 1.28 times less risky than STEPN. It trades about 0.17 of its potential returns per unit of risk. STEPN is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  12.00  in STEPN on August 30, 2024 and sell it today you would earn a total of  9.00  from holding STEPN or generate 75.0% return on investment over 90 days.

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

Optimism  vs.  STEPN

Optimism

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optimism are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Optimism exhibited solid returns over the last few months and may actually be approaching a breakup point.

STEPN

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in STEPN are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, STEPN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Optimism and STEPN

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

The idea behind Optimism and STEPN 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.