Correlation Between Mereo BioPharma and Adaptimmune Therapeutics

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

Diversification Opportunities for Mereo BioPharma and Adaptimmune Therapeutics

0.27

Correlation Coefficient

Mereo BioPharma  Adaptimmune Therapeutics

Modest diversification

The 3 months correlation between Mereo and Adaptimmune is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Adaptimmune Therapeutics Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adaptimmune 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 Adaptimmune Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adaptimmune Therapeutics has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Adaptimmune Therapeutics go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Adaptimmune Therapeutics

Given the investment horizon of 90 days Mereo BioPharma Group is expected to generate 0.85 times more return on investment than Adaptimmune Therapeutics. However, Mereo BioPharma Group is 1.18 times less risky than Adaptimmune Therapeutics. It trades about 0.06 of its potential returns per unit of risk. Adaptimmune Therapeutics Plc is currently generating about -0.09 per unit of risk. If you would invest  314.00  in Mereo BioPharma Group on March 14, 2024 and sell it today you would earn a total of  38.00  from holding Mereo BioPharma Group or generate 12.1% return on investment over 90 days.

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

Mereo BioPharma Group  vs.  Adaptimmune Therapeutics Plc

Mereo BioPharma Group

Risk-Adjusted Performance

5 of 100

Modest

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

Adaptimmune Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adaptimmune Therapeutics Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Mereo BioPharma and Adaptimmune Therapeutics

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

The idea behind Mereo BioPharma Group and Adaptimmune Therapeutics Plc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.