Correlation Between Mereo BioPharma and TG Therapeutics

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

Diversification Opportunities for Mereo BioPharma and TG Therapeutics

-0.73

Correlation Coefficient

Mereo BioPharma  TG Therapeutics

Pay attention - limited upside

The 3 months correlation between Mereo and TGTX is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and TG Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TG 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 TG Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TG Therapeutics has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and TG Therapeutics go up and down completely randomly.

Pair Corralation between Mereo BioPharma and TG Therapeutics

Given the investment horizon of 90 days Mereo BioPharma is expected to generate 1.0 times less return on investment than TG Therapeutics. But when comparing it to its historical volatility, Mereo BioPharma Group is 1.09 times less risky than TG Therapeutics. It trades about 0.09 of its potential returns per unit of risk. TG Therapeutics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  906.00  in TG Therapeutics on September 3, 2024 and sell it today you would earn a total of  2,603  from holding TG Therapeutics or generate 287.31% return on investment over 90 days.

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

Mereo BioPharma Group  vs.  TG 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.

TG Therapeutics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TG Therapeutics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, TG Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mereo BioPharma and TG Therapeutics

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

The idea behind Mereo BioPharma Group and TG 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.