Correlation Between UBS Plc and Mereo BioPharma

Can any of the company-specific risk be diversified away by investing in both UBS Plc and Mereo BioPharma 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 UBS Plc and Mereo BioPharma into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UBS plc and Mereo BioPharma Group, you can compare the effects of market volatilities on UBS Plc and Mereo BioPharma 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 UBS Plc with a short position of Mereo BioPharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of UBS Plc and Mereo BioPharma.

Diversification Opportunities for UBS Plc and Mereo BioPharma

-0.7

Correlation Coefficient

UBS Plc  Mereo BioPharma

Excellent diversification

The 3 months correlation between UBS and Mereo is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding UBS plc and Mereo BioPharma Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mereo BioPharma Group and UBS Plc 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 UBS plc are associated (or correlated) with Mereo BioPharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mereo BioPharma Group has no effect on the direction of UBS Plc i.e., UBS Plc and Mereo BioPharma go up and down completely randomly.

Pair Corralation between UBS Plc and Mereo BioPharma

Assuming the 90 days trading horizon UBS Plc is expected to generate 4.26 times less return on investment than Mereo BioPharma. But when comparing it to its historical volatility, UBS plc is 6.74 times less risky than Mereo BioPharma. It trades about 0.12 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  211.00  in Mereo BioPharma Group on September 11, 2024 and sell it today you would earn a total of  164.00  from holding Mereo BioPharma Group or generate 77.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.8%
Values	Daily Returns

UBS plc   vs.  Mereo BioPharma Group

UBS plc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UBS plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, UBS Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with UBS Plc and Mereo BioPharma

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

The idea behind UBS plc and Mereo BioPharma Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.