Correlation Between Merus BV and Homology Medicines

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

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

Diversification Opportunities for Merus BV and Homology Medicines

0.42

Correlation Coefficient

Merus BV  Homology Medicines

Very weak diversification

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

Pair Corralation between Merus BV and Homology Medicines

Given the investment horizon of 90 days Merus BV is expected to generate 0.7 times more return on investment than Homology Medicines. However, Merus BV is 1.42 times less risky than Homology Medicines. It trades about 0.08 of its potential returns per unit of risk. Homology Medicines is currently generating about 0.01 per unit of risk. If you would invest  1,467  in Merus BV on September 13, 2024 and sell it today you would earn a total of  2,852  from holding Merus BV or generate 194.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	29.35%
Values	Daily Returns

Merus BV  vs.  Homology Medicines

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Homology Medicines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Homology Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Homology Medicines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merus BV and Homology Medicines

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

The idea behind Merus BV and Homology Medicines 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.