Correlation Between Mereo BioPharma and CytomX Therapeutics

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

Diversification Opportunities for Mereo BioPharma and CytomX Therapeutics

0.53

Correlation Coefficient

Mereo BioPharma  CytomX Therapeutics

Very weak diversification

The 3 months correlation between Mereo and CytomX is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and CytomX Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CytomX 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 CytomX Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CytomX Therapeutics has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and CytomX Therapeutics go up and down completely randomly.

Pair Corralation between Mereo BioPharma and CytomX Therapeutics

Given the investment horizon of 90 days Mereo BioPharma Group is expected to under-perform the CytomX Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Mereo BioPharma Group is 1.29 times less risky than CytomX Therapeutics. The stock trades about -0.12 of its potential returns per unit of risk. The CytomX Therapeutics is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  101.00  in CytomX Therapeutics on September 5, 2024 and sell it today you would earn a total of  22.00  from holding CytomX Therapeutics or generate 21.78% return on investment over 90 days.

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

Mereo BioPharma Group  vs.  CytomX 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 weak 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.

CytomX Therapeutics

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CytomX Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, CytomX Therapeutics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mereo BioPharma and CytomX Therapeutics

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

The idea behind Mereo BioPharma Group and CytomX 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.