Correlation Between Mereo BioPharma and Nuvation Bio

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

Diversification Opportunities for Mereo BioPharma and Nuvation Bio

-0.54

Correlation Coefficient

Mereo BioPharma  Nuvation Bio

Excellent diversification

The 3 months correlation between Mereo and Nuvation is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Nuvation Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvation Bio 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 Nuvation Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvation Bio has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Nuvation Bio go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Nuvation Bio

Given the investment horizon of 90 days Mereo BioPharma Group is expected to generate 1.02 times more return on investment than Nuvation Bio. However, Mereo BioPharma is 1.02 times more volatile than Nuvation Bio. It trades about 0.09 of its potential returns per unit of risk. Nuvation Bio is currently generating about 0.03 per unit of risk. If you would invest  74.00  in Mereo BioPharma Group on September 22, 2024 and sell it today you would earn a total of  261.00  from holding Mereo BioPharma Group or generate 352.7% 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.  Nuvation Bio

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

Nuvation Bio

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nuvation Bio are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nuvation Bio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mereo BioPharma and Nuvation Bio

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

The idea behind Mereo BioPharma Group and Nuvation Bio 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.