Correlation Between Optimism and NKN

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

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

Diversification Opportunities for Optimism and NKN

0.9

Correlation Coefficient

Optimism  NKN

Almost no diversification

The 3 months correlation between Optimism and NKN is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and NKN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NKN 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 NKN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NKN has no effect on the direction of Optimism i.e., Optimism and NKN go up and down completely randomly.

Pair Corralation between Optimism and NKN

Assuming the 90 days horizon Optimism is expected to under-perform the NKN. In addition to that, Optimism is 1.04 times more volatile than NKN. It trades about -0.22 of its total potential returns per unit of risk. NKN is currently generating about -0.21 per unit of volatility. If you would invest  9.11  in NKN on December 29, 2024 and sell it today you would lose (4.96) from holding NKN or give up 54.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Optimism  vs.  NKN

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.

NKN

Risk-Adjusted Performance

Very Weak

Over the last 90 days NKN 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 NKN shareholders.

Pair Trading with Optimism and NKN

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

The idea behind Optimism and NKN 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 Global Correlations module to find global opportunities by holding instruments from different markets.