Correlation Between Fortress Biotech and XOMA

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

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

Diversification Opportunities for Fortress Biotech and XOMA

0.19

Correlation Coefficient

Fortress Biotech  XOMA

Average diversification

The 3 months correlation between Fortress and XOMA is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Fortress Biotech Pref and XOMA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XOMA and Fortress Biotech 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 Fortress Biotech Pref 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 Fortress Biotech i.e., Fortress Biotech and XOMA go up and down completely randomly.

Pair Corralation between Fortress Biotech and XOMA

Assuming the 90 days horizon Fortress Biotech Pref is expected to generate 12.41 times more return on investment than XOMA. However, Fortress Biotech is 12.41 times more volatile than XOMA Corporation. It trades about 0.08 of its potential returns per unit of risk. XOMA Corporation is currently generating about 0.08 per unit of risk. If you would invest  545.00  in Fortress Biotech Pref on September 28, 2024 and sell it today you would earn a total of  91.00  from holding Fortress Biotech Pref or generate 16.7% return on investment over 90 days.

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

Fortress Biotech Pref  vs.  XOMA Corp.

Fortress Biotech Pref

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fortress Biotech Pref are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Fortress Biotech reported solid returns over the last few months and may actually be approaching a breakup point.

XOMA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in XOMA Corporation are ranked lower than 6 (%) 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 Fortress Biotech and XOMA

The main advantage of trading using opposite Fortress Biotech and XOMA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortress Biotech 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 Fortress Biotech Pref 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.