Correlation Between Mersana Therapeutics and Revolution Medicines

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Can any of the company-specific risk be diversified away by investing in both Mersana Therapeutics and Revolution Medicines 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 Mersana Therapeutics and Revolution Medicines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mersana Therapeutics and Revolution Medicines, you can compare the effects of market volatilities on Mersana Therapeutics and Revolution Medicines 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 Mersana Therapeutics with a short position of Revolution Medicines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mersana Therapeutics and Revolution Medicines.

Diversification Opportunities for Mersana Therapeutics and Revolution Medicines

MersanaRevolutionDiversified AwayMersanaRevolutionDiversified Away100%
0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Mersana and Revolution is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Mersana Therapeutics and Revolution Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Revolution Medicines and Mersana Therapeutics 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 Mersana Therapeutics are associated (or correlated) with Revolution Medicines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Revolution Medicines has no effect on the direction of Mersana Therapeutics i.e., Mersana Therapeutics and Revolution Medicines go up and down completely randomly.

Pair Corralation between Mersana Therapeutics and Revolution Medicines

Given the investment horizon of 90 days Mersana Therapeutics is expected to under-perform the Revolution Medicines. In addition to that, Mersana Therapeutics is 3.08 times more volatile than Revolution Medicines. It trades about -0.08 of its total potential returns per unit of risk. Revolution Medicines is currently generating about -0.09 per unit of volatility. If you would invest  4,092  in Revolution Medicines on November 30, 2024 and sell it today you would lose (184.00) from holding Revolution Medicines or give up 4.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Mersana Therapeutics  vs.  Revolution Medicines

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -60-40-20020
JavaScript chart by amCharts 3.21.15MRSN RVMD
       Timeline  
Mersana Therapeutics 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Mersana 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 basic 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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb0.511.522.53
Revolution Medicines 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Revolution Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb4045505560

Mersana Therapeutics and Revolution Medicines Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-15.64-11.72-7.79-3.86-0.06543.166.389.5912.81 0.010.020.030.040.050.06
JavaScript chart by amCharts 3.21.15MRSN RVMD
       Returns  

Pair Trading with Mersana Therapeutics and Revolution Medicines

The main advantage of trading using opposite Mersana Therapeutics and Revolution Medicines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mersana Therapeutics position performs unexpectedly, Revolution Medicines 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 Revolution Medicines will offset losses from the drop in Revolution Medicines' long position.
The idea behind Mersana Therapeutics and Revolution Medicines 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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