Correlation Between Redwood Trust and XOMA

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

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

Diversification Opportunities for Redwood Trust and XOMA

0.52

Correlation Coefficient

Redwood Trust  XOMA

Very weak diversification

The 3 months correlation between Redwood and XOMA is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Redwood Trust and XOMA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XOMA and Redwood Trust 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 Redwood Trust 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 Redwood Trust i.e., Redwood Trust and XOMA go up and down completely randomly.

Pair Corralation between Redwood Trust and XOMA

Assuming the 90 days trading horizon Redwood Trust is expected to generate 1.72 times more return on investment than XOMA. However, Redwood Trust is 1.72 times more volatile than XOMA Corporation. It trades about 0.07 of its potential returns per unit of risk. XOMA Corporation is currently generating about 0.1 per unit of risk. If you would invest  2,032  in Redwood Trust on October 21, 2024 and sell it today you would earn a total of  498.00  from holding Redwood Trust or generate 24.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.65%
Values	Daily Returns

Redwood Trust  vs.  XOMA Corp.

Redwood Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

XOMA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in XOMA Corporation are ranked lower than 2 (%) 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 Redwood Trust and XOMA

The main advantage of trading using opposite Redwood Trust and XOMA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Redwood Trust 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 Redwood Trust 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..