Correlation Between Mereo BioPharma and Compagnie Plastic

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

Diversification Opportunities for Mereo BioPharma and Compagnie Plastic

-0.3

Correlation Coefficient

Mereo BioPharma  Compagnie Plastic

Very good diversification

The 3 months correlation between Mereo and Compagnie is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Compagnie Plastic Omnium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Plastic Omnium 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 Compagnie Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Plastic Omnium has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Compagnie Plastic go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Compagnie Plastic

Assuming the 90 days trading horizon Mereo BioPharma Group is expected to generate 2.15 times more return on investment than Compagnie Plastic. However, Mereo BioPharma is 2.15 times more volatile than Compagnie Plastic Omnium. It trades about 0.08 of its potential returns per unit of risk. Compagnie Plastic Omnium is currently generating about -0.01 per unit of risk. If you would invest  91.00  in Mereo BioPharma Group on October 10, 2024 and sell it today you would earn a total of  280.00  from holding Mereo BioPharma Group or generate 307.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.79%
Values	Daily Returns

Mereo BioPharma Group  vs.  Compagnie Plastic Omnium

Mereo BioPharma Group

Risk-Adjusted Performance

0 of 100

Very Weak

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 comparatively stable basic indicators, Mereo BioPharma is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Compagnie Plastic Omnium

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Plastic Omnium are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Compagnie Plastic unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mereo BioPharma and Compagnie Plastic

The main advantage of trading using opposite Mereo BioPharma and Compagnie Plastic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mereo BioPharma position performs unexpectedly, Compagnie Plastic 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 Compagnie Plastic will offset losses from the drop in Compagnie Plastic's long position.

The idea behind Mereo BioPharma Group and Compagnie Plastic Omnium 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.