Correlation Between Equillium and Denali Therapeutics

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

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

Diversification Opportunities for Equillium and Denali Therapeutics

0.11

Correlation Coefficient

Equillium  Denali Therapeutics

Average diversification

The 3 months correlation between Equillium and Denali is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Equillium and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and Equillium 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 Equillium 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 Equillium i.e., Equillium and Denali Therapeutics go up and down completely randomly.

Pair Corralation between Equillium and Denali Therapeutics

Allowing for the 90-day total investment horizon Equillium is expected to generate 1.89 times more return on investment than Denali Therapeutics. However, Equillium is 1.89 times more volatile than Denali Therapeutics. It trades about 0.04 of its potential returns per unit of risk. Denali Therapeutics is currently generating about 0.03 per unit of risk. If you would invest  68.00  in Equillium on September 12, 2024 and sell it today you would earn a total of  2.00  from holding Equillium or generate 2.94% return on investment over 90 days.

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

Equillium  vs.  Denali Therapeutics

Equillium

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest weak performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Equillium and Denali Therapeutics

The main advantage of trading using opposite Equillium and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equillium 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 Equillium 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.