Correlation Between Terns Pharmaceuticals and Merus BV

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

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

Diversification Opportunities for Terns Pharmaceuticals and Merus BV

-0.14

Correlation Coefficient

Terns Pharmaceuticals  Merus BV

Good diversification

The 3 months correlation between Terns and Merus is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and Merus BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merus BV and Terns Pharmaceuticals 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 Terns Pharmaceuticals 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 Terns Pharmaceuticals i.e., Terns Pharmaceuticals and Merus BV go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and Merus BV

Given the investment horizon of 90 days Terns Pharmaceuticals is expected to generate 1.51 times less return on investment than Merus BV. In addition to that, Terns Pharmaceuticals is 1.47 times more volatile than Merus BV. It trades about 0.03 of its total potential returns per unit of risk. Merus BV is currently generating about 0.07 per unit of volatility. If you would invest  2,050  in Merus BV on July 20, 2024 and sell it today you would earn a total of  3,124  from holding Merus BV or generate 152.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Terns Pharmaceuticals  vs.  Merus BV

Terns Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 weak 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.

Pair Trading with Terns Pharmaceuticals and Merus BV

The main advantage of trading using opposite Terns Pharmaceuticals and Merus BV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Terns Pharmaceuticals 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 Terns Pharmaceuticals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.