Correlation Between Connect Biopharma and XOMA

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

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

Diversification Opportunities for Connect Biopharma and XOMA

-0.42

Correlation Coefficient

Connect Biopharma  XOMA

Very good diversification

The 3 months correlation between Connect and XOMA is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Connect Biopharma Holdings and XOMA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XOMA and Connect Biopharma 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 Connect Biopharma Holdings are associated (or correlated) with XOMA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XOMA has no effect on the direction of Connect Biopharma i.e., Connect Biopharma and XOMA go up and down completely randomly.

Pair Corralation between Connect Biopharma and XOMA

Given the investment horizon of 90 days Connect Biopharma Holdings is expected to generate 8.55 times more return on investment than XOMA. However, Connect Biopharma is 8.55 times more volatile than XOMA Corporation. It trades about 0.03 of its potential returns per unit of risk. XOMA Corporation is currently generating about 0.06 per unit of risk. If you would invest  110.00  in Connect Biopharma Holdings on December 2, 2024 and sell it today you would lose (19.00) from holding Connect Biopharma Holdings or give up 17.27% of portfolio value over 90 days.

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

Connect Biopharma Holdings  vs.  XOMA Corp.

Connect Biopharma

Risk-Adjusted Performance

Very Weak

Over the last 90 days Connect Biopharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

XOMA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in XOMA Corporation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, XOMA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Connect Biopharma and XOMA

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

The idea behind Connect Biopharma Holdings and XOMA Corporation 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.