Correlation Between Merus BV and Puma Biotechnology

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

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

Diversification Opportunities for Merus BV and Puma Biotechnology

-0.2

Correlation Coefficient

Merus BV  Puma Biotechnology

Good diversification

The 3 months correlation between Merus and Puma is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Merus BV and Puma Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Puma Biotechnology and Merus BV 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 Merus BV are associated (or correlated) with Puma Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Puma Biotechnology has no effect on the direction of Merus BV i.e., Merus BV and Puma Biotechnology go up and down completely randomly.

Pair Corralation between Merus BV and Puma Biotechnology

Given the investment horizon of 90 days Merus BV is expected to under-perform the Puma Biotechnology. But the stock apears to be less risky and, when comparing its historical volatility, Merus BV is 1.77 times less risky than Puma Biotechnology. The stock trades about -0.08 of its potential returns per unit of risk. The Puma Biotechnology is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  250.00  in Puma Biotechnology on September 18, 2024 and sell it today you would earn a total of  50.00  from holding Puma Biotechnology or generate 20.0% return on investment over 90 days.

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

Merus BV  vs.  Puma Biotechnology

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 latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Puma Biotechnology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Puma Biotechnology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Puma Biotechnology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merus BV and Puma Biotechnology

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

The idea behind Merus BV and Puma Biotechnology 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.