Correlation Between Optimism and NEM

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

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

Diversification Opportunities for Optimism and NEM

0.92

Correlation Coefficient

Optimism  NEM

Almost no diversification

The 3 months correlation between Optimism and NEM is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and NEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEM 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 NEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEM has no effect on the direction of Optimism i.e., Optimism and NEM go up and down completely randomly.

Pair Corralation between Optimism and NEM

Assuming the 90 days horizon Optimism is expected to generate 1.08 times less return on investment than NEM. In addition to that, Optimism is 1.22 times more volatile than NEM. It trades about 0.18 of its total potential returns per unit of risk. NEM is currently generating about 0.24 per unit of volatility. If you would invest  1.61  in NEM on September 4, 2024 and sell it today you would earn a total of  1.67  from holding NEM or generate 103.73% return on investment over 90 days.

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

Optimism  vs.  NEM

Optimism

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optimism are ranked lower than 14 (%) 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.

NEM

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NEM are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, NEM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Optimism and NEM

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

The idea behind Optimism and NEM 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.