Correlation Between DiaMedica Therapeutics and Denali Therapeutics

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

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

Diversification Opportunities for DiaMedica Therapeutics and Denali Therapeutics

0.28

Correlation Coefficient

DiaMedica Therapeutics  Denali Therapeutics

Modest diversification

The 3 months correlation between DiaMedica and Denali is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding DiaMedica Therapeutics and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and DiaMedica 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 DiaMedica Therapeutics 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 DiaMedica Therapeutics i.e., DiaMedica Therapeutics and Denali Therapeutics go up and down completely randomly.

Pair Corralation between DiaMedica Therapeutics and Denali Therapeutics

Given the investment horizon of 90 days DiaMedica Therapeutics is expected to generate 1.57 times less return on investment than Denali Therapeutics. But when comparing it to its historical volatility, DiaMedica Therapeutics is 1.44 times less risky than Denali Therapeutics. It trades about 0.04 of its potential returns per unit of risk. Denali Therapeutics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,706  in Denali Therapeutics on February 13, 2024 and sell it today you would earn a total of  125.00  from holding Denali Therapeutics or generate 7.33% return on investment over 90 days.

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

DiaMedica Therapeutics  vs.  Denali Therapeutics

DiaMedica Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DiaMedica Therapeutics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, DiaMedica Therapeutics may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Denali Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Denali Therapeutics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Denali Therapeutics demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DiaMedica Therapeutics and Denali Therapeutics

The main advantage of trading using opposite DiaMedica Therapeutics and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DiaMedica Therapeutics 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 DiaMedica Therapeutics 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..