Optimism Volatility

Since volatility provides cryptocurrency investors with entry points to take advantage of coin prices, investors in projects such as Optimism can benefit from it. Downward market volatility can be a perfect environment for traders who play the long game. Here, they may buy additional Optimism shares at lower prices. For example, an investor can purchase Optimism coin that has halved in price over a short period. This will lower your average cost per share, thereby improving your portfolio's performance when the markets normalize. Similarly, when the prices of Optimism's crypto rise, investors can sell out and invest the proceeds in other coins with better opportunities. Investing in volatile markets will allow investors in evolving Defi or crypto projects such as Optimism to generate better long-term returns.

Optimism's beta coefficient measures the volatility of Optimism crypto coin compared to the systematic risk of the entire market represented by your selected benchmark. In mathematical terms, beta represents the slope of the line through a regression of data points where each of these points represents Optimism crypto coin's returns against your selected market. In other words, Optimism's beta of 0.8 provides an investor with an approximation of how much risk Optimism crypto coin can potentially add to one of your existing portfolios. Optimism shows above-average downside volatility for the selected time horizon. We advise cryptocurrency investors to inspect Optimism further and ensure that all market timing and asset allocation strategies are consistent with the estimation of Optimism future alpha. Please note that many cryptocurrencies are speculative and subject to artificial price hype. Ensure you understand the upside potential and downside risk of investing in Optimism. We encourage all cryptocurrency investors to look for signals such as email spams, message board hypes, claims of breakthroughs, volume upswings, sudden news releases, promotions that are not reported, or demotions released before the public announcements. Please also check the biographies and work history of current and past project contributors before investing in high-volatility crypto coins. You can indeed make money on Optimism if you perfectly time your entry and exit. However, remember that cryptos that have been the subject of artificial hype usually cannot maintain its increased price for more than a few days. The price of a promoted high-volatility instrument will almost always revert. The only way to increase coin holder value is through legitimate performance analysis backed up by solid fundamentals of the project the coin represents. Understanding different market volatility trends often help investors time the market. Properly using volatility indicators enable traders to measure Optimism's crypto coin risk against market volatility during both bullish and bearish trends. The higher level of volatility that comes with bear markets can directly impact Optimism's price while adding stress to investors as they watch their shares' value plummet. This usually forces investors to rebalance their portfolios by buying different cryptos as prices fall or investing in DeFi projects.

Optimism standard deviation measures the daily dispersion of prices over your selected time horizon relative to its mean. A typical volatile entity has a high standard deviation, while the deviation of a stable instrument is usually low. As a downside, the standard deviation calculates all uncertainty as risk, even when it is in your favor, such as above-average returns.

It is essential to understand the difference between upside risk (as represented by Optimism's standard deviation) and the downside risk, which can be measured by semi-deviation or downside deviation of Optimism's daily returns or price. Since the actual investment returns on holding a position in optimism crypto coin tend to have a non-normal distribution, there will be different probabilities for losses than for gains. The likelihood of losses is reflected in the downside risk of an investment in Optimism.

Volatility refers to the frequency at which Optimism crypto price increases or decreases within a specified period. These fluctuations usually indicate the level of risk that's associated with Optimism's price changes. Investors will then calculate the volatility of Optimism's crypto coin to predict their future moves. A crypto that has erratic price changes quickly hits new highs, and lows are considered highly volatile. A crypto coin with relatively stable price changes has low volatility. A highly volatile crypto is riskier, but the risk cuts both ways. Investing in highly volatile security can either be highly successful, or you may experience significant failure. There are two main types of Optimism's volatility:

Historical Volatility

This type of crypto volatility measures Optimism's fluctuations based on previous trends. It's commonly used to predict Optimism's future behavior based on its past. However, it cannot conclusively determine the future direction of the crypto coin.

Implied Volatility

This type of volatility provides a positive outlook on future price fluctuations for Optimism's current market price. This means that the crypto will return to its initially predicted market price. This type of volatility can be derived from derivative instruments written on Optimism's to be redeemed at a future date.

Most traded cryptocurrencies are subject to two types of risk - systematic (i.e., market) and unsystematic (i.e., nonmarket or coin-specific or project-specific) risk. Unsystematic risk is the risk that events specific to Optimism project will adversely affect the coin's price. This type of risk can be diversified away by owning several different digital assets on different exchanges whose coin prices have shown a small correlation to each other. On the other hand, systematic risk is the risk that Optimism's price will be affected by overall cryptocurrency market movements and cannot be diversified away. So, no matter how many positions you have, you cannot eliminate market risk. However, you can measure a Optimism crypto's historical response to market movements and buy it if you are comfortable with its volatility direction. Beta and standard deviation are two commonly used measures to help you make the right decision.

Assuming the 90 days horizon the coefficient of variation of Optimism is 581.26. The daily returns are distributed with a variance of 39.23 and standard deviation of 6.26. The mean deviation of Optimism is currently at 4.46. For similar time horizon, the selected benchmark (Dow Jones Industrial) has volatility of 0.

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