Correlation Between Merus BV and Aerovate Therapeutics

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

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

Diversification Opportunities for Merus BV and Aerovate Therapeutics

-0.33

Correlation Coefficient

Merus BV  Aerovate Therapeutics

Very good diversification

The 3 months correlation between Merus and Aerovate is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Merus BV and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics 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 Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of Merus BV i.e., Merus BV and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between Merus BV and Aerovate Therapeutics

Given the investment horizon of 90 days Merus BV is expected to under-perform the Aerovate Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Merus BV is 1.09 times less risky than Aerovate Therapeutics. The stock trades about -0.14 of its potential returns per unit of risk. The Aerovate Therapeutics is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  212.00  in Aerovate Therapeutics on October 25, 2024 and sell it today you would earn a total of  38.00  from holding Aerovate Therapeutics or generate 17.92% 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.  Aerovate Therapeutics

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Aerovate Therapeutics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merus BV and Aerovate Therapeutics

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

The idea behind Merus BV and Aerovate 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.