Correlation Between XOMA and Redwood Trust

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

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

Diversification Opportunities for XOMA and Redwood Trust

0.39

Correlation Coefficient

XOMA  Redwood Trust

Weak diversification

The 3 months correlation between XOMA and Redwood is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding XOMA Corp. and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust 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 Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of XOMA i.e., XOMA and Redwood Trust go up and down completely randomly.

Pair Corralation between XOMA and Redwood Trust

Assuming the 90 days horizon XOMA is expected to generate 3.81 times less return on investment than Redwood Trust. But when comparing it to its historical volatility, XOMA Corporation is 1.93 times less risky than Redwood Trust. It trades about 0.08 of its potential returns per unit of risk. Redwood Trust is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,524  in Redwood Trust on October 5, 2024 and sell it today you would earn a total of  57.00  from holding Redwood Trust or generate 2.26% return on investment over 90 days.

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

XOMA Corp.  vs.  Redwood Trust

XOMA

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in XOMA Corporation are ranked lower than 4 (%) 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.

Redwood Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Redwood Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with XOMA and Redwood Trust

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

The idea behind XOMA Corporation and Redwood Trust 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.