Correlation Between Synthetix and UMA

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

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

Diversification Opportunities for Synthetix and UMA

0.98

Correlation Coefficient

Synthetix  UMA

Almost no diversification

The 3 months correlation between Synthetix and UMA is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Synthetix and UMA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMA and Synthetix 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 Synthetix are associated (or correlated) with UMA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMA has no effect on the direction of Synthetix i.e., Synthetix and UMA go up and down completely randomly.

Pair Corralation between Synthetix and UMA

Assuming the 90 days trading horizon Synthetix is expected to under-perform the UMA. But the crypto coin apears to be less risky and, when comparing its historical volatility, Synthetix is 1.1 times less risky than UMA. The crypto coin trades about -0.2 of its potential returns per unit of risk. The UMA is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  265.00  in UMA on December 30, 2024 and sell it today you would lose (146.00) from holding UMA or give up 55.09% of portfolio value over 90 days.

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

Synthetix  vs.  UMA

Synthetix

Risk-Adjusted Performance

Very Weak

Over the last 90 days Synthetix 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 Synthetix shareholders.

UMA

Risk-Adjusted Performance

Very Weak

Over the last 90 days UMA 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 UMA shareholders.

Pair Trading with Synthetix and UMA

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

The idea behind Synthetix and UMA 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.