Correlation Between Highway Holdings and Mereo BioPharma

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

Diversification Opportunities for Highway Holdings and Mereo BioPharma

-0.47
  Correlation Coefficient

Very good diversification

The 3 months correlation between Highway and Mereo is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited 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 Highway Holdings 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 Highway Holdings Limited 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 Highway Holdings i.e., Highway Holdings and Mereo BioPharma go up and down completely randomly.

Pair Corralation between Highway Holdings and Mereo BioPharma

Given the investment horizon of 90 days Highway Holdings Limited is expected to generate 0.77 times more return on investment than Mereo BioPharma. However, Highway Holdings Limited is 1.3 times less risky than Mereo BioPharma. It trades about 0.17 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about 0.02 per unit of risk. If you would invest  204.00  in Highway Holdings Limited on September 11, 2022 and sell it today you would earn a total of  26.00  from holding Highway Holdings Limited or generate 12.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Highway Holdings Limited  vs.  Mereo BioPharma Group

 Performance (%) 
       Timeline  
Highway Holdings 
Highway Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Highway Holdings Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical indicators, Highway Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Highway 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 weak performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Mereo Price Channel

Highway Holdings and Mereo BioPharma Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Highway Holdings and Mereo BioPharma

The main advantage of trading using opposite Highway Holdings and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highway Holdings 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 Highway Holdings Limited 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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