Correlation Between IGM Biosciences and Merus BV

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

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

Diversification Opportunities for IGM Biosciences and Merus BV

0.52

Correlation Coefficient

IGM Biosciences  Merus BV

Very weak diversification

The 3 months correlation between IGM and Merus is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding IGM Biosciences and Merus BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merus BV 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 Merus BV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merus BV has no effect on the direction of IGM Biosciences i.e., IGM Biosciences and Merus BV go up and down completely randomly.

Pair Corralation between IGM Biosciences and Merus BV

Given the investment horizon of 90 days IGM Biosciences is expected to generate 3.21 times more return on investment than Merus BV. However, IGM Biosciences is 3.21 times more volatile than Merus BV. It trades about 0.04 of its potential returns per unit of risk. Merus BV is currently generating about -0.03 per unit of risk. If you would invest  1,040  in IGM Biosciences on September 4, 2024 and sell it today you would earn a total of  39.00  from holding IGM Biosciences or generate 3.75% 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.  Merus BV

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.

Merus BV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merus BV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Merus BV is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IGM Biosciences and Merus BV

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

The idea behind IGM Biosciences and Merus BV 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.