Correlation Between Galapagos and Denali Therapeutics

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Can any of the company-specific risk be diversified away by investing in both Galapagos 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 Galapagos and Denali Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Galapagos NV ADR and Denali Therapeutics, you can compare the effects of market volatilities on Galapagos 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 Galapagos with a short position of Denali Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Galapagos and Denali Therapeutics.

Diversification Opportunities for Galapagos and Denali Therapeutics

-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between Galapagos and Denali is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Galapagos NV ADR and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and Galapagos 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 Galapagos NV ADR 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 Galapagos i.e., Galapagos and Denali Therapeutics go up and down completely randomly.

Pair Corralation between Galapagos and Denali Therapeutics

Given the investment horizon of 90 days Galapagos NV ADR is expected to under-perform the Denali Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Galapagos NV ADR is 4.05 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 -0.11 of returns per unit of risk over similar time horizon. If you would invest  2,335  in Denali Therapeutics on December 29, 2023 and sell it today you would lose (258.00) from holding Denali Therapeutics or give up 11.05% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Galapagos NV ADR  vs.  Denali Therapeutics

 Performance 
       Timeline  
Galapagos NV ADR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Galapagos NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Denali Therapeutics 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Denali Therapeutics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, Denali Therapeutics may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Galapagos and Denali Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Galapagos and Denali Therapeutics

The main advantage of trading using opposite Galapagos and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Galapagos 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 Galapagos NV ADR 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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