Correlation Between CytomX Therapeutics and Arrowhead Pharmaceuticals

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

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

Diversification Opportunities for CytomX Therapeutics and Arrowhead Pharmaceuticals

0.29

Correlation Coefficient

CytomX Therapeutics  Arrowhead Pharmaceuticals

Modest diversification

The 3 months correlation between CytomX and Arrowhead is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding CytomX Therapeutics and Arrowhead Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrowhead Pharmaceuticals and CytomX 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 CytomX Therapeutics are associated (or correlated) with Arrowhead Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrowhead Pharmaceuticals has no effect on the direction of CytomX Therapeutics i.e., CytomX Therapeutics and Arrowhead Pharmaceuticals go up and down completely randomly.

Pair Corralation between CytomX Therapeutics and Arrowhead Pharmaceuticals

Given the investment horizon of 90 days CytomX Therapeutics is expected to under-perform the Arrowhead Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, CytomX Therapeutics is 1.24 times less risky than Arrowhead Pharmaceuticals. The stock trades about -0.02 of its potential returns per unit of risk. The Arrowhead Pharmaceuticals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,291  in Arrowhead Pharmaceuticals on August 31, 2024 and sell it today you would earn a total of  324.00  from holding Arrowhead Pharmaceuticals or generate 14.14% return on investment over 90 days.

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

CytomX Therapeutics  vs.  Arrowhead Pharmaceuticals

CytomX Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Arrowhead Pharmaceuticals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arrowhead Pharmaceuticals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Arrowhead Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CytomX Therapeutics and Arrowhead Pharmaceuticals

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

The idea behind CytomX Therapeutics and Arrowhead Pharmaceuticals 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.