Correlation Between DiaMedica Therapeutics and Mereo BioPharma

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

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

Diversification Opportunities for DiaMedica Therapeutics and Mereo BioPharma

-0.37

Correlation Coefficient

DiaMedica Therapeutics  Mereo BioPharma

Very good diversification

The 3 months correlation between DiaMedica and Mereo is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding DiaMedica Therapeutics 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 DiaMedica 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 DiaMedica Therapeutics 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 DiaMedica Therapeutics i.e., DiaMedica Therapeutics and Mereo BioPharma go up and down completely randomly.

Pair Corralation between DiaMedica Therapeutics and Mereo BioPharma

Given the investment horizon of 90 days DiaMedica Therapeutics is expected to generate 1.25 times less return on investment than Mereo BioPharma. But when comparing it to its historical volatility, DiaMedica Therapeutics is 1.09 times less risky than Mereo BioPharma. It trades about 0.08 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  77.00  in Mereo BioPharma Group on September 4, 2024 and sell it today you would earn a total of  286.00  from holding Mereo BioPharma Group or generate 371.43% return on investment over 90 days.

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

DiaMedica Therapeutics  vs.  Mereo BioPharma Group

DiaMedica Therapeutics

Risk-Adjusted Performance

11 of 100

Good

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

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 conflicting performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with DiaMedica Therapeutics and Mereo BioPharma

The main advantage of trading using opposite DiaMedica Therapeutics and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DiaMedica Therapeutics 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 DiaMedica Therapeutics 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.