Correlation Between IGM Biosciences and Biomea Fusion

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

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

Diversification Opportunities for IGM Biosciences and Biomea Fusion

0.77

Correlation Coefficient

IGM Biosciences  Biomea Fusion

Poor diversification

The 3 months correlation between IGM and Biomea is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding IGM Biosciences and Biomea Fusion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biomea Fusion and IGM Biosciences 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 IGM Biosciences are associated (or correlated) with Biomea Fusion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biomea Fusion has no effect on the direction of IGM Biosciences i.e., IGM Biosciences and Biomea Fusion go up and down completely randomly.

Pair Corralation between IGM Biosciences and Biomea Fusion

Given the investment horizon of 90 days IGM Biosciences is expected to generate 1.56 times more return on investment than Biomea Fusion. However, IGM Biosciences is 1.56 times more volatile than Biomea Fusion. It trades about 0.04 of its potential returns per unit of risk. Biomea Fusion is currently generating about 0.02 per unit of risk. If you would invest  986.00  in IGM Biosciences on September 3, 2024 and sell it today you would earn a total of  18.00  from holding IGM Biosciences or generate 1.83% return on investment over 90 days.

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

IGM Biosciences  vs.  Biomea Fusion

IGM Biosciences

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Biosciences are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, IGM Biosciences unveiled solid returns over the last few months and may actually be approaching a breakup point.

Biomea Fusion

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Biomea Fusion are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Biomea Fusion may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IGM Biosciences and Biomea Fusion

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

The idea behind IGM Biosciences and Biomea Fusion 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.