Correlation Between Mereo BioPharma and Aileron Therapeutics
Can any of the company-specific risk be diversified away by investing in both Mereo BioPharma and Aileron 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 Mereo BioPharma and Aileron Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mereo BioPharma Group and Aileron Therapeutics, you can compare the effects of market volatilities on Mereo BioPharma and Aileron 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 Mereo BioPharma with a short position of Aileron Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mereo BioPharma and Aileron Therapeutics.
Diversification Opportunities for Mereo BioPharma and Aileron Therapeutics
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Mereo and Aileron is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Aileron Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aileron Therapeutics and Mereo BioPharma 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 Mereo BioPharma Group are associated (or correlated) with Aileron Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aileron Therapeutics has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Aileron Therapeutics go up and down completely randomly.
Pair Corralation between Mereo BioPharma and Aileron Therapeutics
Given the investment horizon of 90 days Mereo BioPharma Group is expected to generate 0.81 times more return on investment than Aileron Therapeutics. However, Mereo BioPharma Group is 1.23 times less risky than Aileron Therapeutics. It trades about -0.22 of its potential returns per unit of risk. Aileron Therapeutics is currently generating about -0.39 per unit of risk. If you would invest 420.00 in Mereo BioPharma Group on August 29, 2024 and sell it today you would lose (80.00) from holding Mereo BioPharma Group or give up 19.05% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mereo BioPharma Group vs. Aileron Therapeutics
Performance |
| Timeline |
| Mereo BioPharma Group |
| Aileron Therapeutics |
Mereo BioPharma and Aileron Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mereo BioPharma and Aileron Therapeutics
The main advantage of trading using opposite Mereo BioPharma and Aileron Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mereo BioPharma position performs unexpectedly, Aileron 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 Aileron Therapeutics will offset losses from the drop in Aileron Therapeutics' long position.| Mereo BioPharma vs. Bright Minds Biosciences | Mereo BioPharma vs. HP Inc | Mereo BioPharma vs. Intel | Mereo BioPharma vs. Chevron Corp |
| Aileron Therapeutics vs. Bright Minds Biosciences | Aileron Therapeutics vs. HP Inc | Aileron Therapeutics vs. Intel | Aileron Therapeutics vs. Chevron Corp |
Check out your portfolio center.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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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