Correlation Between Denali Therapeutics and Akero Therapeutics

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

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

Diversification Opportunities for Denali Therapeutics and Akero Therapeutics

0.49

Correlation Coefficient

Denali Therapeutics  Akero Therapeutics

Very weak diversification

The 3 months correlation between Denali and Akero is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Denali Therapeutics and Akero Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akero Therapeutics and Denali 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 Denali Therapeutics are associated (or correlated) with Akero Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akero Therapeutics has no effect on the direction of Denali Therapeutics i.e., Denali Therapeutics and Akero Therapeutics go up and down completely randomly.

Pair Corralation between Denali Therapeutics and Akero Therapeutics

Given the investment horizon of 90 days Denali Therapeutics is expected to generate 4.05 times less return on investment than Akero Therapeutics. But when comparing it to its historical volatility, Denali Therapeutics is 1.17 times less risky than Akero Therapeutics. It trades about 0.0 of its potential returns per unit of risk. Akero Therapeutics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,700  in Akero Therapeutics on October 12, 2024 and sell it today you would lose (2,084) from holding Akero Therapeutics or give up 44.34% of portfolio value over 90 days.

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

Denali Therapeutics  vs.  Akero Therapeutics

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 weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Akero Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Denali Therapeutics and Akero Therapeutics

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

The idea behind Denali Therapeutics and Akero 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.