Correlation Between BridgeBio Pharma and Denali Therapeutics

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

Diversification Opportunities for BridgeBio Pharma and Denali Therapeutics

-0.03
  Correlation Coefficient

Good diversification

The 3 months correlation between BridgeBio and Denali is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding BridgeBio Pharma and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and BridgeBio Pharma 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 BridgeBio Pharma are associated (or correlated) with Denali Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Denali Therapeutics has no effect on the direction of BridgeBio Pharma i.e., BridgeBio Pharma and Denali Therapeutics go up and down completely randomly.

Pair Corralation between BridgeBio Pharma and Denali Therapeutics

Given the investment horizon of 90 days BridgeBio Pharma is expected to under-perform the Denali Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, BridgeBio Pharma is 1.22 times less risky than Denali Therapeutics. The stock trades about -0.01 of its potential returns per unit of risk. The Denali Therapeutics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,929  in Denali Therapeutics on September 7, 2024 and sell it today you would earn a total of  403.00  from holding Denali Therapeutics or generate 20.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

BridgeBio Pharma  vs.  Denali Therapeutics

 Performance 
       Timeline  
BridgeBio Pharma 

Risk-Adjusted Performance

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Weak
 
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Very Weak
Over the last 90 days BridgeBio Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Denali Therapeutics 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Denali Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Denali Therapeutics is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

BridgeBio Pharma and Denali Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BridgeBio Pharma and Denali Therapeutics

The main advantage of trading using opposite BridgeBio Pharma and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BridgeBio Pharma position performs unexpectedly, Denali Therapeutics 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 Denali Therapeutics will offset losses from the drop in Denali Therapeutics' long position.
The idea behind BridgeBio Pharma and Denali Therapeutics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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