Correlation Between Mereo BioPharma and Kodiak Sciences

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

Diversification Opportunities for Mereo BioPharma and Kodiak Sciences

0.91

Correlation Coefficient

Mereo BioPharma  Kodiak Sciences

Almost no diversification

The 3 months correlation between Mereo and Kodiak is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Kodiak Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kodiak Sciences 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 Kodiak Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kodiak Sciences has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Kodiak Sciences go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Kodiak Sciences

Given the investment horizon of 90 days Mereo BioPharma Group is expected to generate 0.61 times more return on investment than Kodiak Sciences. However, Mereo BioPharma Group is 1.64 times less risky than Kodiak Sciences. It trades about -0.16 of its potential returns per unit of risk. Kodiak Sciences is currently generating about -0.31 per unit of risk. If you would invest  352.00  in Mereo BioPharma Group on December 28, 2024 and sell it today you would lose (111.00) from holding Mereo BioPharma Group or give up 31.53% of portfolio value over 90 days.

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

Mereo BioPharma Group  vs.  Kodiak Sciences

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.

Kodiak Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kodiak Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Mereo BioPharma and Kodiak Sciences

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

The idea behind Mereo BioPharma Group and Kodiak Sciences 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.