Correlation Between Optimism and ARDR
Can any of the company-specific risk be diversified away by investing in both Optimism and ARDR 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 ARDR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Optimism and ARDR, you can compare the effects of market volatilities on Optimism and ARDR 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 ARDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Optimism and ARDR.
Diversification Opportunities for Optimism and ARDR
Poor diversification
The 3 months correlation between Optimism and ARDR is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and ARDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARDR 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 ARDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARDR has no effect on the direction of Optimism i.e., Optimism and ARDR go up and down completely randomly.
Pair Corralation between Optimism and ARDR
Assuming the 90 days horizon Optimism is expected to generate 1.54 times more return on investment than ARDR. However, Optimism is 1.54 times more volatile than ARDR. It trades about 0.24 of its potential returns per unit of risk. ARDR is currently generating about 0.26 per unit of risk. If you would invest 156.00 in Optimism on August 26, 2024 and sell it today you would earn a total of 65.00 from holding Optimism or generate 41.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Optimism vs. ARDR
Performance |
| Timeline |
| Optimism |
| ARDR |
Optimism and ARDR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Optimism and ARDR
The main advantage of trading using opposite Optimism and ARDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optimism position performs unexpectedly, ARDR 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 ARDR will offset losses from the drop in ARDR's long position.The idea behind Optimism and ARDR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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