Correlation Between Optimism and RATING

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

By analyzing existing cross correlation between Optimism and RATING, you can compare the effects of market volatilities on Optimism and RATING 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 RATING. Check out your portfolio center. Please also check ongoing floating volatility patterns of Optimism and RATING.

Diversification Opportunities for Optimism and RATING

-0.66

Correlation Coefficient

Optimism  RATING

Excellent diversification

The 3 months correlation between Optimism and RATING is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Optimism and RATING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RATING 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 RATING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RATING has no effect on the direction of Optimism i.e., Optimism and RATING go up and down completely randomly.

Pair Corralation between Optimism and RATING

Assuming the 90 days horizon Optimism is expected to generate 14.51 times less return on investment than RATING. But when comparing it to its historical volatility, Optimism is 2.23 times less risky than RATING. It trades about 0.01 of its potential returns per unit of risk. RATING is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.02  in RATING on April 16, 2025 and sell it today you would lose (0.01) from holding RATING or give up 64.25% of portfolio value over 90 days.

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

Optimism  vs.  RATING

Optimism

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Optimism are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Optimism exhibited solid returns over the last few months and may actually be approaching a breakup point.

RATING

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RATING are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, RATING is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Optimism and RATING

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

The idea behind Optimism and RATING 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.