Correlation Between Denali Therapeutics and BridgeBio Pharma

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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

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between Denali and BridgeBio is -0.04. 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 generate 0.99 times more return on investment than BridgeBio Pharma. However, Denali Therapeutics is 1.01 times less risky than BridgeBio Pharma. It trades about -0.01 of its potential returns per unit of risk. BridgeBio Pharma is currently generating about -0.04 per unit of risk. If you would invest  2,525  in Denali Therapeutics on September 6, 2024 and sell it today you would lose (155.00) from holding Denali Therapeutics or give up 6.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.44%
ValuesDaily Returns

Denali Therapeutics  vs.  BridgeBio Pharma

 Performance 
       Timeline  
Denali Therapeutics 

Risk-Adjusted Performance

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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

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Weak
 
Strong
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 and BridgeBio Pharma Volatility Contrast

   Predicted Return Density   
       Returns  

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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