Correlation Between Rave Restaurant and Mereo BioPharma

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

Diversification Opportunities for Rave Restaurant and Mereo BioPharma

-0.3
  Correlation Coefficient

Very good diversification

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

Pair Corralation between Rave Restaurant and Mereo BioPharma

Given the investment horizon of 90 days Rave Restaurant Group is expected to generate 1.49 times more return on investment than Mereo BioPharma. However, Rave Restaurant is 1.49 times more volatile than Mereo BioPharma Group. It trades about -0.08 of its potential returns per unit of risk. Mereo BioPharma Group is currently generating about -0.17 per unit of risk. If you would invest  216.00  in Rave Restaurant Group on September 2, 2022 and sell it today you would lose (37.00)  from holding Rave Restaurant Group or give up 17.13% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Rave Restaurant Group  vs.  Mereo BioPharma Group

 Performance (%) 
       Timeline  
Rave Restaurant Group 
Rave Restaurant Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Rave Restaurant exhibited solid returns over the last few months and may actually be approaching a breakup point.

Rave Restaurant 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 unfluctuating 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

Rave Restaurant and Mereo BioPharma Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rave Restaurant and Mereo BioPharma

The main advantage of trading using opposite Rave Restaurant and Mereo BioPharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rave Restaurant 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 Rave Restaurant Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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