Correlation Between Rheinmetall and Mereo BioPharma

Can any of the company-specific risk be diversified away by investing in both Rheinmetall 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 Rheinmetall and Mereo BioPharma into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rheinmetall AG and Mereo BioPharma Group, you can compare the effects of market volatilities on Rheinmetall 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 Rheinmetall with a short position of Mereo BioPharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and Mereo BioPharma.

Diversification Opportunities for Rheinmetall and Mereo BioPharma

-0.68

Correlation Coefficient

Rheinmetall  Mereo BioPharma

Excellent diversification

The 3 months correlation between Rheinmetall and Mereo is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG 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 Rheinmetall 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 Rheinmetall AG 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 Rheinmetall i.e., Rheinmetall and Mereo BioPharma go up and down completely randomly.

Pair Corralation between Rheinmetall and Mereo BioPharma

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 0.88 times more return on investment than Mereo BioPharma. However, Rheinmetall AG is 1.13 times less risky than Mereo BioPharma. It trades about 0.4 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about -0.17 per unit of risk. If you would invest  61,900  in Rheinmetall AG on December 25, 2024 and sell it today you would earn a total of  69,850  from holding Rheinmetall AG or generate 112.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Rheinmetall AG  vs.  Mereo BioPharma Group

Rheinmetall AG

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Mereo BioPharma Group

Risk-Adjusted Performance

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

Pair Trading with Rheinmetall and Mereo BioPharma

The main advantage of trading using opposite Rheinmetall and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rheinmetall 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 Rheinmetall AG 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.

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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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.