Correlation Between Optimism and Highstreet
Can any of the company-specific risk be diversified away by investing in both Optimism and Highstreet 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 Highstreet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Optimism and Highstreet, you can compare the effects of market volatilities on Optimism and Highstreet 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 Highstreet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Optimism and Highstreet.
Diversification Opportunities for Optimism and Highstreet
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Optimism and Highstreet is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and Highstreet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highstreet 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 Highstreet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highstreet has no effect on the direction of Optimism i.e., Optimism and Highstreet go up and down completely randomly.
Pair Corralation between Optimism and Highstreet
Assuming the 90 days horizon Optimism is expected to generate 0.66 times more return on investment than Highstreet. However, Optimism is 1.51 times less risky than Highstreet. It trades about 0.01 of its potential returns per unit of risk. Highstreet is currently generating about -0.04 per unit of risk. If you would invest 255.00 in Optimism on August 26, 2024 and sell it today you would lose (34.00) from holding Optimism or give up 13.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Optimism vs. Highstreet
Performance |
| Timeline |
| Optimism |
| Highstreet |
Optimism and Highstreet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Optimism and Highstreet
The main advantage of trading using opposite Optimism and Highstreet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optimism position performs unexpectedly, Highstreet 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 Highstreet will offset losses from the drop in Highstreet's long position.The idea behind Optimism and Highstreet 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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