Correlation Between Mereo BioPharma and Invesco Health

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

Diversification Opportunities for Mereo BioPharma and Invesco Health

0.75

Correlation Coefficient

Mereo BioPharma  Invesco Health

Poor diversification

The 3 months correlation between Mereo and Invesco is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Invesco Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Health Care 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 Invesco Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Health Care has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Invesco Health go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Invesco Health

Assuming the 90 days trading horizon Mereo BioPharma Group is expected to under-perform the Invesco Health. In addition to that, Mereo BioPharma is 5.71 times more volatile than Invesco Health Care. It trades about -0.06 of its total potential returns per unit of risk. Invesco Health Care is currently generating about -0.14 per unit of volatility. If you would invest  74,750  in Invesco Health Care on September 9, 2024 and sell it today you would lose (4,729) from holding Invesco Health Care or give up 6.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Mereo BioPharma Group  vs.  Invesco Health Care

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 unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Invesco Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco Health is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Mereo BioPharma and Invesco Health

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

The idea behind Mereo BioPharma Group and Invesco Health Care 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.