Correlation Between Tezos and UMA

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

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

Diversification Opportunities for Tezos and UMA

0.99

Correlation Coefficient

Tezos  UMA

No risk reduction

The 3 months correlation between Tezos and UMA is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Tezos and UMA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMA and Tezos 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 Tezos 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 Tezos i.e., Tezos and UMA go up and down completely randomly.

Pair Corralation between Tezos and UMA

Assuming the 90 days trading horizon Tezos is expected to generate 0.67 times more return on investment than UMA. However, Tezos is 1.49 times less risky than UMA. It trades about -0.2 of its potential returns per unit of risk. UMA is currently generating about -0.15 per unit of risk. If you would invest  128.00  in Tezos on December 29, 2024 and sell it today you would lose (60.00) from holding Tezos or give up 46.87% of portfolio value over 90 days.

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

Tezos  vs.  UMA

Tezos

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tezos 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 Tezos 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 Tezos and UMA

The main advantage of trading using opposite Tezos and UMA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tezos 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 Tezos 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.