Correlation Between Merus BV and Innovent Biologics

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

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

Diversification Opportunities for Merus BV and Innovent Biologics

0.45

Correlation Coefficient

Merus BV  Innovent Biologics

Very weak diversification

The 3 months correlation between Merus and Innovent is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Merus BV and Innovent Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovent Biologics 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 Innovent Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovent Biologics has no effect on the direction of Merus BV i.e., Merus BV and Innovent Biologics go up and down completely randomly.

Pair Corralation between Merus BV and Innovent Biologics

Given the investment horizon of 90 days Merus BV is expected to generate 0.72 times more return on investment than Innovent Biologics. However, Merus BV is 1.38 times less risky than Innovent Biologics. It trades about -0.14 of its potential returns per unit of risk. Innovent Biologics is currently generating about -0.18 per unit of risk. If you would invest  4,245  in Merus BV on October 22, 2024 and sell it today you would lose (300.00) from holding Merus BV or give up 7.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Merus BV  vs.  Innovent Biologics

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.

Innovent Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovent Biologics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Merus BV and Innovent Biologics

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

The idea behind Merus BV and Innovent Biologics 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.