Does a Liquidity Pool with Highly Correlated Assets Experience Less Impermanent Loss?

Yes, a pool with highly correlated assets experiences significantly less impermanent loss. Impermanent loss is a function of the price ratio divergence.

If the assets are highly correlated (e.g. two stablecoins or ETH and a staked ETH derivative), their prices tend to move together, meaning the price ratio remains close to the initial ratio. This minimal divergence leads to minimal impermanent loss, making these pools much safer for LPs from an IL perspective.