Correlation Between Invesco Health and Mereo BioPharma

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

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

Diversification Opportunities for Invesco Health and Mereo BioPharma

0.74

Correlation Coefficient

Invesco Health  Mereo BioPharma

Poor diversification

The 3 months correlation between Invesco and Mereo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Health Care 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 Invesco Health 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 Invesco Health Care 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 Invesco Health i.e., Invesco Health and Mereo BioPharma go up and down completely randomly.

Pair Corralation between Invesco Health and Mereo BioPharma

Assuming the 90 days trading horizon Invesco Health Care is expected to generate 0.18 times more return on investment than Mereo BioPharma. However, Invesco Health Care is 5.62 times less risky than Mereo BioPharma. It trades about -0.13 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about -0.08 per unit of risk. If you would invest  74,750  in Invesco Health Care on September 7, 2024 and sell it today you would lose (4,292) from holding Invesco Health Care or give up 5.74% of portfolio value over 90 days.

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

Invesco Health Care  vs.  Mereo BioPharma Group

Invesco Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco Health is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 Invesco Health and Mereo BioPharma

The main advantage of trading using opposite Invesco Health and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Health 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 Invesco Health Care 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.