Correlation Between Optimism and LCX

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

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

Diversification Opportunities for Optimism and LCX

0.89

Correlation Coefficient

Optimism  LCX

Very poor diversification

The 3 months correlation between Optimism and LCX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and LCX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LCX 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 LCX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LCX has no effect on the direction of Optimism i.e., Optimism and LCX go up and down completely randomly.

Pair Corralation between Optimism and LCX

Assuming the 90 days horizon Optimism is expected to under-perform the LCX. But the crypto coin apears to be less risky and, when comparing its historical volatility, Optimism is 1.5 times less risky than LCX. The crypto coin trades about -0.21 of its potential returns per unit of risk. The LCX is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  23.00  in LCX on December 30, 2024 and sell it today you would lose (9.00) from holding LCX or give up 39.13% of portfolio value over 90 days.

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

Optimism  vs.  LCX

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.

LCX

Risk-Adjusted Performance

Very Weak

Over the last 90 days LCX 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 basic 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 LCX shareholders.

Pair Trading with Optimism and LCX

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

The idea behind Optimism and LCX 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.