Correlation Between Kodiak Sciences and Mereo BioPharma

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

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

Diversification Opportunities for Kodiak Sciences and Mereo BioPharma

-0.75

Correlation Coefficient

Kodiak Sciences  Mereo BioPharma

Pay attention - limited upside

The 3 months correlation between Kodiak and Mereo is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Kodiak Sciences 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 Kodiak Sciences 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 Kodiak Sciences 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 Kodiak Sciences i.e., Kodiak Sciences and Mereo BioPharma go up and down completely randomly.

Pair Corralation between Kodiak Sciences and Mereo BioPharma

Considering the 90-day investment horizon Kodiak Sciences is expected to generate 1.16 times more return on investment than Mereo BioPharma. However, Kodiak Sciences is 1.16 times more volatile than Mereo BioPharma Group. It trades about 0.41 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about -0.07 per unit of risk. If you would invest  242.00  in Kodiak Sciences on August 31, 2024 and sell it today you would earn a total of  425.00  from holding Kodiak Sciences or generate 175.62% return on investment over 90 days.

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

Kodiak Sciences  vs.  Mereo BioPharma Group

Kodiak Sciences

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Kodiak Sciences are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Kodiak Sciences 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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Kodiak Sciences and Mereo BioPharma

The main advantage of trading using opposite Kodiak Sciences and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kodiak Sciences 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 Kodiak Sciences 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..