Correlation Between XOMA and Capital One

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

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

Diversification Opportunities for XOMA and Capital One

-0.32

Correlation Coefficient

XOMA  Capital One

Very good diversification

The 3 months correlation between XOMA and Capital is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding XOMA Corp. and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial 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 Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of XOMA i.e., XOMA and Capital One go up and down completely randomly.

Pair Corralation between XOMA and Capital One

Assuming the 90 days horizon XOMA is expected to generate 1.07 times less return on investment than Capital One. But when comparing it to its historical volatility, XOMA Corporation is 1.28 times less risky than Capital One. It trades about 0.06 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,621  in Capital One Financial on September 12, 2024 and sell it today you would earn a total of  305.00  from holding Capital One Financial or generate 18.82% 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.  Capital One Financial

XOMA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XOMA Corporation are ranked lower than 8 (%) 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.

Capital One Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady technical and fundamental indicators, Capital One is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with XOMA and Capital One

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

The idea behind XOMA Corporation and Capital One Financial 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.