Correlation Between Mereo BioPharma and Avid Bioservices

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

Diversification Opportunities for Mereo BioPharma and Avid Bioservices

0.5

Correlation Coefficient

Mereo BioPharma  Avid Bioservices

Very weak diversification

The 3 months correlation between Mereo and Avid is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Avid Bioservices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avid Bioservices 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 Avid Bioservices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avid Bioservices has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Avid Bioservices go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Avid Bioservices

Given the investment horizon of 90 days Mereo BioPharma Group is expected to under-perform the Avid Bioservices. In addition to that, Mereo BioPharma is 19.22 times more volatile than Avid Bioservices. It trades about -0.16 of its total potential returns per unit of risk. Avid Bioservices is currently generating about 0.28 per unit of volatility. If you would invest  1,233  in Avid Bioservices on December 28, 2024 and sell it today you would earn a total of  16.00  from holding Avid Bioservices or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	41.67%
Values	Daily Returns

Mereo BioPharma Group  vs.  Avid Bioservices

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 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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Avid Bioservices

Risk-Adjusted Performance

Solid

Over the last 90 days Avid Bioservices has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Avid Bioservices is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Mereo BioPharma and Avid Bioservices

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

The idea behind Mereo BioPharma Group and Avid Bioservices 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.

Check out your portfolio center.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.