Correlation Between Mereo BioPharma and Galmed Pharmaceuticals

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

Diversification Opportunities for Mereo BioPharma and Galmed Pharmaceuticals

0.04

Correlation Coefficient

Mereo BioPharma  Galmed Pharmaceuticals

Significant diversification

The 3 months correlation between Mereo and Galmed is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Mereo BioPharma Group and Galmed Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galmed Pharmaceuticals 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 Galmed Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galmed Pharmaceuticals has no effect on the direction of Mereo BioPharma i.e., Mereo BioPharma and Galmed Pharmaceuticals go up and down completely randomly.

Pair Corralation between Mereo BioPharma and Galmed Pharmaceuticals

Given the investment horizon of 90 days Mereo BioPharma Group is expected to under-perform the Galmed Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Mereo BioPharma Group is 10.63 times less risky than Galmed Pharmaceuticals. The stock trades about -0.07 of its potential returns per unit of risk. The Galmed Pharmaceuticals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  313.00  in Galmed Pharmaceuticals on September 3, 2024 and sell it today you would lose (27.00) from holding Galmed Pharmaceuticals or give up 8.63% of portfolio value over 90 days.

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

Mereo BioPharma Group  vs.  Galmed Pharmaceuticals

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 unsteady 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.

Galmed Pharmaceuticals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Galmed Pharmaceuticals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Galmed Pharmaceuticals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mereo BioPharma and Galmed Pharmaceuticals

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

The idea behind Mereo BioPharma Group and Galmed Pharmaceuticals 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.