Correlation Between OLT and Decentraland

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

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

Diversification Opportunities for OLT and Decentraland

0.51

Correlation Coefficient

OLT  Decentraland

Very weak diversification

The 3 months correlation between OLT and Decentraland is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding OLT and Decentraland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decentraland and OLT 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 OLT are associated (or correlated) with Decentraland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decentraland has no effect on the direction of OLT i.e., OLT and Decentraland go up and down completely randomly.

Pair Corralation between OLT and Decentraland

Assuming the 90 days trading horizon OLT is expected to generate 1.83 times more return on investment than Decentraland. However, OLT is 1.83 times more volatile than Decentraland. It trades about -0.07 of its potential returns per unit of risk. Decentraland is currently generating about -0.24 per unit of risk. If you would invest  0.35  in OLT on January 29, 2024 and sell it today you would lose (0.09) from holding OLT or give up 27.12% of portfolio value over 90 days.

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

OLT  vs.  Decentraland

OLT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OLT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for OLT shareholders.

Decentraland

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Decentraland are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Decentraland may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with OLT and Decentraland

The main advantage of trading using opposite OLT and Decentraland positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OLT position performs unexpectedly, Decentraland 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 Decentraland will offset losses from the drop in Decentraland's long position.

The idea behind OLT and Decentraland 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.