Correlation Between Novo Nordisk and Mereo BioPharma

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

Diversification Opportunities for Novo Nordisk and Mereo BioPharma

-0.54
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Novo Nordisk and Mereo is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS 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 Novo Nordisk 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 Novo Nordisk AS 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 Novo Nordisk i.e., Novo Nordisk and Mereo BioPharma go up and down completely randomly.

Pair Corralation between Novo Nordisk and Mereo BioPharma

Considering the 90-day investment horizon Novo Nordisk AS is expected to generate 0.25 times more return on investment than Mereo BioPharma. However, Novo Nordisk AS is 3.99 times less risky than Mereo BioPharma. It trades about 0.06 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about 0.01 per unit of risk. If you would invest  10,053  in Novo Nordisk AS on September 3, 2022 and sell it today you would earn a total of  2,560  from holding Novo Nordisk AS or generate 25.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Novo Nordisk AS  vs.  Mereo BioPharma Group

 Performance (%) 
       Timeline  
Novo Nordisk AS 
Novo Nordisk Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Novo Nordisk AS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Novo Nordisk disclosed solid returns over the last few months and may actually be approaching a breakup point.

Novo Nordisk 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 unsteady 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

Novo Nordisk and Mereo BioPharma Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Novo Nordisk and Mereo BioPharma

The main advantage of trading using opposite Novo Nordisk and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novo Nordisk 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.
Novo Nordisk vs. Northwest Healthcare Properties
Novo Nordisk vs. Anheuser Busch Inbev
The idea behind Novo Nordisk AS 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.
Mereo BioPharma vs. Northwest Healthcare Properties
Mereo BioPharma vs. Anheuser Busch Inbev
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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