Correlation Between Aerovate Therapeutics and Merus BV

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

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

Diversification Opportunities for Aerovate Therapeutics and Merus BV

-0.34

Correlation Coefficient

Aerovate Therapeutics  Merus BV

Very good diversification

The 3 months correlation between Aerovate and Merus is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Aerovate Therapeutics and Merus BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merus BV and Aerovate Therapeutics 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 Aerovate Therapeutics 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 Aerovate Therapeutics i.e., Aerovate Therapeutics and Merus BV go up and down completely randomly.

Pair Corralation between Aerovate Therapeutics and Merus BV

Given the investment horizon of 90 days Aerovate Therapeutics is expected to generate 24.27 times less return on investment than Merus BV. But when comparing it to its historical volatility, Aerovate Therapeutics is 1.39 times less risky than Merus BV. It trades about 0.01 of its potential returns per unit of risk. Merus BV is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,185  in Merus BV on December 20, 2024 and sell it today you would earn a total of  515.00  from holding Merus BV or generate 12.31% return on investment over 90 days.

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

Aerovate Therapeutics  vs.  Merus BV

Aerovate Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aerovate Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Aerovate Therapeutics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Merus BV

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merus BV are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Merus BV unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerovate Therapeutics and Merus BV

The main advantage of trading using opposite Aerovate Therapeutics and Merus BV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aerovate Therapeutics 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 Aerovate Therapeutics 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.