Correlation Between Cardiff Oncology and Denali Therapeutics

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

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

Diversification Opportunities for Cardiff Oncology and Denali Therapeutics

0.37

Correlation Coefficient

Cardiff Oncology  Denali Therapeutics

Weak diversification

The 3 months correlation between Cardiff and Denali is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Cardiff Oncology and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and Cardiff Oncology 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 Cardiff Oncology 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 Cardiff Oncology i.e., Cardiff Oncology and Denali Therapeutics go up and down completely randomly.

Pair Corralation between Cardiff Oncology and Denali Therapeutics

Given the investment horizon of 90 days Cardiff Oncology is expected to generate 1.61 times more return on investment than Denali Therapeutics. However, Cardiff Oncology is 1.61 times more volatile than Denali Therapeutics. It trades about 0.03 of its potential returns per unit of risk. Denali Therapeutics is currently generating about -0.02 per unit of risk. If you would invest  231.00  in Cardiff Oncology on September 7, 2024 and sell it today you would earn a total of  3.00  from holding Cardiff Oncology or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cardiff Oncology  vs.  Denali Therapeutics

Cardiff Oncology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cardiff Oncology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, Cardiff Oncology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Denali Therapeutics

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Cardiff Oncology and Denali Therapeutics

The main advantage of trading using opposite Cardiff Oncology and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardiff Oncology 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 Cardiff Oncology 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.