Correlation Between IGM Biosciences and Keros Therapeutics

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

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

Diversification Opportunities for IGM Biosciences and Keros Therapeutics

0.42

Correlation Coefficient

IGM Biosciences  Keros Therapeutics

Very weak diversification

The 3 months correlation between IGM and Keros is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding IGM Biosciences and Keros Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keros Therapeutics 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 Keros Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keros Therapeutics has no effect on the direction of IGM Biosciences i.e., IGM Biosciences and Keros Therapeutics go up and down completely randomly.

Pair Corralation between IGM Biosciences and Keros Therapeutics

Given the investment horizon of 90 days IGM Biosciences is expected to generate 1.13 times less return on investment than Keros Therapeutics. In addition to that, IGM Biosciences is 2.73 times more volatile than Keros Therapeutics. It trades about 0.04 of its total potential returns per unit of risk. Keros Therapeutics is currently generating about 0.12 per unit of volatility. If you would invest  4,779  in Keros Therapeutics on September 3, 2024 and sell it today you would earn a total of  995.00  from holding Keros Therapeutics or generate 20.82% return on investment over 90 days.

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

IGM Biosciences  vs.  Keros Therapeutics

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.

Keros Therapeutics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Keros Therapeutics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Keros Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IGM Biosciences and Keros Therapeutics

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

The idea behind IGM Biosciences and Keros Therapeutics 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.