Correlation Between Burford Capital and Mereo BioPharma

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Can any of the company-specific risk be diversified away by investing in both Burford Capital 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 Burford Capital and Mereo BioPharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Burford Capital and Mereo BioPharma Group, you can compare the effects of market volatilities on Burford Capital 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 Burford Capital with a short position of Mereo BioPharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Burford Capital and Mereo BioPharma.

Diversification Opportunities for Burford Capital and Mereo BioPharma

-0.3
  Correlation Coefficient

Very good diversification

The 3 months correlation between Burford and Mereo is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Burford Capital 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 Burford Capital 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 Burford Capital 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 Burford Capital i.e., Burford Capital and Mereo BioPharma go up and down completely randomly.

Pair Corralation between Burford Capital and Mereo BioPharma

Considering the 90-day investment horizon Burford Capital is expected to generate 1.89 times less return on investment than Mereo BioPharma. But when comparing it to its historical volatility, Burford Capital is 2.88 times less risky than Mereo BioPharma. It trades about 0.01 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  201.00  in Mereo BioPharma Group on September 4, 2022 and sell it today you would lose (117.00)  from holding Mereo BioPharma Group or give up 58.21% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Burford Capital  vs.  Mereo BioPharma Group

 Performance (%) 
       Timeline  
Burford Capital 
Burford Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Burford Capital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Burford Capital is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Burford Price Channel

Mereo BioPharma Group 
Mereo Performance
0 of 100
Over the last 90 days Mereo BioPharma Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Mereo Price Channel

Burford Capital and Mereo BioPharma Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Burford Capital and Mereo BioPharma

The main advantage of trading using opposite Burford Capital and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Burford Capital 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.
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The idea behind Burford Capital 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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Check out your portfolio center. 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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