Correlation Between Revolution Medicines and Mersana Therapeutics

Can any of the company-specific risk be diversified away by investing in both Revolution Medicines and Mersana 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 Revolution Medicines and Mersana Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Revolution Medicines and Mersana Therapeutics, you can compare the effects of market volatilities on Revolution Medicines and Mersana 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 Revolution Medicines with a short position of Mersana Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Revolution Medicines and Mersana Therapeutics.

Diversification Opportunities for Revolution Medicines and Mersana Therapeutics

0.39

Correlation Coefficient

Revolution Medicines  Mersana Therapeutics

Weak diversification

The 3 months correlation between Revolution and Mersana is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Mersana Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mersana Therapeutics and Revolution Medicines 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 Revolution Medicines are associated (or correlated) with Mersana Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mersana Therapeutics has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Mersana Therapeutics go up and down completely randomly.

Pair Corralation between Revolution Medicines and Mersana Therapeutics

Given the investment horizon of 90 days Revolution Medicines is expected to under-perform the Mersana Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Revolution Medicines is 2.04 times less risky than Mersana Therapeutics. The stock trades about -0.37 of its potential returns per unit of risk. The Mersana Therapeutics is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  263.00  in Mersana Therapeutics on September 14, 2024 and sell it today you would lose (33.00) from holding Mersana Therapeutics or give up 12.55% of portfolio value over 90 days.

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

Revolution Medicines  vs.  Mersana Therapeutics

Revolution Medicines

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Revolution Medicines are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Revolution Medicines is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Mersana Therapeutics

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mersana Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Mersana Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Revolution Medicines and Mersana Therapeutics

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

The idea behind Revolution Medicines and Mersana 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.