Correlation Between Denali Therapeutics and BridgeBio Pharma

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

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

Diversification Opportunities for Denali Therapeutics and BridgeBio Pharma

-0.01

Correlation Coefficient

Denali Therapeutics  BridgeBio Pharma

Good diversification

The 3 months correlation between Denali and BridgeBio is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Denali Therapeutics and BridgeBio Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BridgeBio Pharma 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 BridgeBio Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BridgeBio Pharma has no effect on the direction of Denali Therapeutics i.e., Denali Therapeutics and BridgeBio Pharma go up and down completely randomly.

Pair Corralation between Denali Therapeutics and BridgeBio Pharma

Given the investment horizon of 90 days Denali Therapeutics is expected to under-perform the BridgeBio Pharma. In addition to that, Denali Therapeutics is 1.0 times more volatile than BridgeBio Pharma. It trades about -0.02 of its total potential returns per unit of risk. BridgeBio Pharma is currently generating about 0.04 per unit of volatility. If you would invest  2,799  in BridgeBio Pharma on September 11, 2024 and sell it today you would earn a total of  151.00  from holding BridgeBio Pharma or generate 5.39% return on investment over 90 days.

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

Denali Therapeutics  vs.  BridgeBio Pharma

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 latest stock price confusion, may contribute to short-horizon losses for the traders.

BridgeBio Pharma

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BridgeBio Pharma are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, BridgeBio Pharma may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Denali Therapeutics and BridgeBio Pharma

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

The idea behind Denali Therapeutics and BridgeBio Pharma 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.