Correlation Between Denali Therapeutics and Capricor Therapeutics

Can any of the company-specific risk be diversified away by investing in both Denali Therapeutics and Capricor 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 Capricor 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 Capricor Therapeutics, you can compare the effects of market volatilities on Denali Therapeutics and Capricor 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 Capricor Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Denali Therapeutics and Capricor Therapeutics.

Diversification Opportunities for Denali Therapeutics and Capricor Therapeutics

0.7

Correlation Coefficient

Denali Therapeutics  Capricor Therapeutics

Poor diversification

The 3 months correlation between Denali and Capricor is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Denali Therapeutics and Capricor Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capricor 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 Capricor Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capricor Therapeutics has no effect on the direction of Denali Therapeutics i.e., Denali Therapeutics and Capricor Therapeutics go up and down completely randomly.

Pair Corralation between Denali Therapeutics and Capricor Therapeutics

Given the investment horizon of 90 days Denali Therapeutics is expected to under-perform the Capricor Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Denali Therapeutics is 1.56 times less risky than Capricor Therapeutics. The stock trades about -0.41 of its potential returns per unit of risk. The Capricor Therapeutics is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,508  in Capricor Therapeutics on October 9, 2024 and sell it today you would lose (8.00) from holding Capricor Therapeutics or give up 0.53% of portfolio value over 90 days.

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

Denali Therapeutics  vs.  Capricor 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.

Capricor Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capricor Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Capricor Therapeutics is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Denali Therapeutics and Capricor Therapeutics

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

The idea behind Denali Therapeutics and Capricor 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.