Correlation Between Phala Network and Optimism

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

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

Diversification Opportunities for Phala Network and Optimism

0.27

Correlation Coefficient

Phala Network  Optimism

Modest diversification

The 3 months correlation between Phala and Optimism is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Phala Network and Optimism in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimism and Phala Network 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 Phala Network are associated (or correlated) with Optimism. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimism has no effect on the direction of Phala Network i.e., Phala Network and Optimism go up and down completely randomly.

Pair Corralation between Phala Network and Optimism

Assuming the 90 days trading horizon Phala Network is expected to generate 2.6 times more return on investment than Optimism. However, Phala Network is 2.6 times more volatile than Optimism. It trades about 0.15 of its potential returns per unit of risk. Optimism is currently generating about 0.06 per unit of risk. If you would invest  11.00  in Phala Network on October 10, 2024 and sell it today you would earn a total of  20.00  from holding Phala Network or generate 181.82% return on investment over 90 days.

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

Phala Network  vs.  Optimism

Phala Network

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Phala Network are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Phala Network exhibited solid returns over the last few months and may actually be approaching a breakup point.

Optimism

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Optimism are ranked lower than 4 (%) 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.

Pair Trading with Phala Network and Optimism

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

The idea behind Phala Network and Optimism 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.