Correlation Between XOMA and Aerovate Therapeutics

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

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

Diversification Opportunities for XOMA and Aerovate Therapeutics

-0.37

Correlation Coefficient

XOMA  Aerovate Therapeutics

Very good diversification

The 3 months correlation between XOMA and Aerovate is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding XOMA Corp. and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics and XOMA 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 XOMA Corporation are associated (or correlated) with Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of XOMA i.e., XOMA and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between XOMA and Aerovate Therapeutics

Assuming the 90 days horizon XOMA Corporation is expected to generate 0.11 times more return on investment than Aerovate Therapeutics. However, XOMA Corporation is 9.21 times less risky than Aerovate Therapeutics. It trades about 0.05 of its potential returns per unit of risk. Aerovate Therapeutics is currently generating about -0.2 per unit of risk. If you would invest  2,536  in XOMA Corporation on December 5, 2024 and sell it today you would earn a total of  4.00  from holding XOMA Corporation or generate 0.16% return on investment over 90 days.

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

XOMA Corp.  vs.  Aerovate Therapeutics

XOMA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XOMA Corporation are ranked lower than 10 (%) 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.

Aerovate Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aerovate Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Aerovate Therapeutics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with XOMA and Aerovate Therapeutics

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

The idea behind XOMA Corporation and Aerovate Therapeutics 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.