Correlation Between Stellar and Optimism
Can any of the company-specific risk be diversified away by investing in both Stellar 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 Stellar and Optimism into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stellar and Optimism, you can compare the effects of market volatilities on Stellar 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 Stellar with a short position of Optimism. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stellar and Optimism.
Diversification Opportunities for Stellar and Optimism
Poor diversification
The 3 months correlation between Stellar and Optimism is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and Optimism in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimism and Stellar 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 Stellar 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 Stellar i.e., Stellar and Optimism go up and down completely randomly.
Pair Corralation between Stellar and Optimism
Assuming the 90 days trading horizon Stellar is expected to generate 1.94 times more return on investment than Optimism. However, Stellar is 1.94 times more volatile than Optimism. It trades about 0.35 of its potential returns per unit of risk. Optimism is currently generating about 0.18 per unit of risk. If you would invest 9.39 in Stellar on August 30, 2024 and sell it today you would earn a total of 38.61 from holding Stellar or generate 411.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stellar vs. Optimism
Performance |
| Timeline |
| Stellar |
| Optimism |
Stellar and Optimism Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stellar and Optimism
The main advantage of trading using opposite Stellar and Optimism positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stellar 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 Stellar 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.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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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