Correlation Between Mersana Therapeutics and Verizon Communications

Can any of the company-specific risk be diversified away by investing in both Mersana Therapeutics and Verizon Communications 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 Mersana Therapeutics and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mersana Therapeutics and Verizon Communications, you can compare the effects of market volatilities on Mersana Therapeutics and Verizon Communications 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 Mersana Therapeutics with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mersana Therapeutics and Verizon Communications.

Diversification Opportunities for Mersana Therapeutics and Verizon Communications

-0.31

Correlation Coefficient

Mersana Therapeutics  Verizon Communications

Very good diversification

The 3 months correlation between Mersana and Verizon is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Mersana Therapeutics and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Mersana Therapeutics 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 Mersana Therapeutics are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Mersana Therapeutics i.e., Mersana Therapeutics and Verizon Communications go up and down completely randomly.

Pair Corralation between Mersana Therapeutics and Verizon Communications

Given the investment horizon of 90 days Mersana Therapeutics is expected to under-perform the Verizon Communications. In addition to that, Mersana Therapeutics is 3.01 times more volatile than Verizon Communications. It trades about -0.32 of its total potential returns per unit of risk. Verizon Communications is currently generating about -0.16 per unit of volatility. If you would invest  4,161  in Verizon Communications on February 1, 2024 and sell it today you would lose (212.00) from holding Verizon Communications or give up 5.09% of portfolio value over 90 days.

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

Mersana Therapeutics  vs.  Verizon Communications

Mersana Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mersana Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Mersana Therapeutics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mersana Therapeutics and Verizon Communications

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

The idea behind Mersana Therapeutics and Verizon Communications 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.