Correlation Between Merck and Mereo BioPharma
Can any of the company-specific risk be diversified away by investing in both Merck and Mereo BioPharma 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 Merck and Mereo BioPharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Mereo BioPharma Group, you can compare the effects of market volatilities on Merck and Mereo BioPharma 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 Merck with a short position of Mereo BioPharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Mereo BioPharma.
Diversification Opportunities for Merck and Mereo BioPharma
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Merck and Mereo is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Mereo BioPharma Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mereo BioPharma Group and Merck 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 Merck Company are associated (or correlated) with Mereo BioPharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mereo BioPharma Group has no effect on the direction of Merck i.e., Merck and Mereo BioPharma go up and down completely randomly.
Pair Corralation between Merck and Mereo BioPharma
Considering the 90-day investment horizon Merck Company is expected to generate 0.33 times more return on investment than Mereo BioPharma. However, Merck Company is 3.03 times less risky than Mereo BioPharma. It trades about -0.17 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about -0.1 per unit of risk. If you would invest 11,766 in Merck Company on August 30, 2024 and sell it today you would lose (1,454) from holding Merck Company or give up 12.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Mereo BioPharma Group
Performance |
| Timeline |
| Merck Company |
| Mereo BioPharma Group |
Merck and Mereo BioPharma Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Mereo BioPharma
The main advantage of trading using opposite Merck and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Mereo BioPharma 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 Mereo BioPharma will offset losses from the drop in Mereo BioPharma's long position.The idea behind Merck Company and Mereo BioPharma Group 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.| Mereo BioPharma vs. Terns Pharmaceuticals | Mereo BioPharma vs. PDS Biotechnology Corp | Mereo BioPharma vs. Inozyme Pharma | Mereo BioPharma vs. Hookipa Pharma |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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