Correlation Between Innovent Biologics and Mersana Therapeutics

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

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

Diversification Opportunities for Innovent Biologics and Mersana Therapeutics

-0.34

Correlation Coefficient

Innovent Biologics  Mersana Therapeutics

Very good diversification

The 3 months correlation between Innovent and Mersana is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Innovent Biologics and Mersana Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mersana Therapeutics and Innovent Biologics 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 Innovent Biologics are associated (or correlated) with Mersana Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mersana Therapeutics has no effect on the direction of Innovent Biologics i.e., Innovent Biologics and Mersana Therapeutics go up and down completely randomly.

Pair Corralation between Innovent Biologics and Mersana Therapeutics

Assuming the 90 days horizon Innovent Biologics is expected to under-perform the Mersana Therapeutics. But the pink sheet apears to be less risky and, when comparing its historical volatility, Innovent Biologics is 1.77 times less risky than Mersana Therapeutics. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Mersana Therapeutics is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  145.00  in Mersana Therapeutics on September 3, 2024 and sell it today you would earn a total of  83.00  from holding Mersana Therapeutics or generate 57.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Innovent Biologics  vs.  Mersana Therapeutics

Innovent Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovent Biologics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Innovent Biologics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Mersana Therapeutics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mersana Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Mersana Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Innovent Biologics and Mersana Therapeutics

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

The idea behind Innovent Biologics and Mersana Therapeutics 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.