Correlation Between Mereo BioPharma and CytomX Therapeutics

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Can any of the company-specific risk be diversified away by investing in both Mereo BioPharma and CytomX 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 CytomX 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 CytomX Therapeutics, you can compare the effects of market volatilities on Mereo BioPharma and CytomX 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 CytomX Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mereo BioPharma and CytomX Therapeutics.

Diversification Opportunities for Mereo BioPharma and CytomX Therapeutics

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Mereo and CytomX is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and CytomX Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CytomX 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 CytomX Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CytomX Therapeutics has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and CytomX Therapeutics go up and down completely randomly.

Pair Corralation between Mereo BioPharma and CytomX Therapeutics

Given the investment horizon of 90 days Mereo BioPharma Group is expected to under-perform the CytomX Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Mereo BioPharma Group is 1.17 times less risky than CytomX Therapeutics. The stock trades about -0.1 of its potential returns per unit of risk. The CytomX Therapeutics is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  109.00  in CytomX Therapeutics on November 8, 2024 and sell it today you would lose (22.00) from holding CytomX Therapeutics or give up 20.18% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Mereo BioPharma Group  vs.  CytomX Therapeutics

 Performance 
       Timeline  
Mereo BioPharma Group 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Mereo BioPharma Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
CytomX Therapeutics 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days CytomX Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Mereo BioPharma and CytomX Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mereo BioPharma and CytomX Therapeutics

The main advantage of trading using opposite Mereo BioPharma and CytomX Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mereo BioPharma position performs unexpectedly, CytomX 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 CytomX Therapeutics will offset losses from the drop in CytomX Therapeutics' long position.
The idea behind Mereo BioPharma Group and CytomX 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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