Correlation Between Inovio Pharmaceuticals and Denali Therapeutics

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

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

Diversification Opportunities for Inovio Pharmaceuticals and Denali Therapeutics

0.62

Correlation Coefficient

Inovio Pharmaceuticals  Denali Therapeutics

Poor diversification

The 3 months correlation between Inovio and Denali is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Inovio Pharmaceuticals and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and Inovio Pharmaceuticals 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 Inovio Pharmaceuticals 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 Inovio Pharmaceuticals i.e., Inovio Pharmaceuticals and Denali Therapeutics go up and down completely randomly.

Pair Corralation between Inovio Pharmaceuticals and Denali Therapeutics

Considering the 90-day investment horizon Inovio Pharmaceuticals is expected to under-perform the Denali Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Inovio Pharmaceuticals is 1.14 times less risky than Denali Therapeutics. The stock trades about -0.47 of its potential returns per unit of risk. The Denali Therapeutics is currently generating about -0.28 of returns per unit of risk over similar time horizon. If you would invest  2,955  in Denali Therapeutics on September 7, 2024 and sell it today you would lose (623.00) from holding Denali Therapeutics or give up 21.08% of portfolio value over 90 days.

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

Inovio Pharmaceuticals  vs.  Denali Therapeutics

Inovio Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inovio Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm 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 fairly strong essential indicators, Denali Therapeutics is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Inovio Pharmaceuticals and Denali Therapeutics

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

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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.