Correlation Between Dermata Therapeutics and Xilio Development

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

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

Diversification Opportunities for Dermata Therapeutics and Xilio Development

0.19

Correlation Coefficient

Dermata Therapeutics  Xilio Development

Average diversification

The 3 months correlation between Dermata and Xilio is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Dermata Therapeutics and Xilio Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xilio Development and Dermata Therapeutics 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 Dermata Therapeutics are associated (or correlated) with Xilio Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xilio Development has no effect on the direction of Dermata Therapeutics i.e., Dermata Therapeutics and Xilio Development go up and down completely randomly.

Pair Corralation between Dermata Therapeutics and Xilio Development

Given the investment horizon of 90 days Dermata Therapeutics is expected to generate 16.52 times less return on investment than Xilio Development. But when comparing it to its historical volatility, Dermata Therapeutics is 3.4 times less risky than Xilio Development. It trades about 0.01 of its potential returns per unit of risk. Xilio Development is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  97.00  in Xilio Development on December 28, 2024 and sell it today you would lose (24.00) from holding Xilio Development or give up 24.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Dermata Therapeutics  vs.  Xilio Development

Dermata Therapeutics

Risk-Adjusted Performance

Insignificant

Over the last 90 days Dermata Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Dermata Therapeutics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xilio Development

Risk-Adjusted Performance

Weak

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

Pair Trading with Dermata Therapeutics and Xilio Development

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

The idea behind Dermata Therapeutics and Xilio Development 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.