Correlation Between Mereo BioPharma and Axsome Therapeutics

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

Diversification Opportunities for Mereo BioPharma and Axsome Therapeutics

-0.46

Correlation Coefficient

Mereo BioPharma  Axsome Therapeutics

Very good diversification

The 3 months correlation between Mereo and Axsome is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Axsome Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axsome Therapeutics 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 Axsome Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axsome Therapeutics has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Axsome Therapeutics go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Axsome Therapeutics

Given the investment horizon of 90 days Mereo BioPharma Group is expected to generate 1.85 times more return on investment than Axsome Therapeutics. However, Mereo BioPharma is 1.85 times more volatile than Axsome Therapeutics. It trades about 0.09 of its potential returns per unit of risk. Axsome Therapeutics is currently generating about 0.03 per unit of risk. If you would invest  79.00  in Mereo BioPharma Group on September 3, 2024 and sell it today you would earn a total of  282.00  from holding Mereo BioPharma Group or generate 356.96% return on investment over 90 days.

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

Mereo BioPharma Group  vs.  Axsome Therapeutics

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 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.

Axsome Therapeutics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Axsome Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Axsome Therapeutics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mereo BioPharma and Axsome Therapeutics

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

The idea behind Mereo BioPharma Group and Axsome 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.