Can any of the company-specific risk be diversified away by investing in both Denali Therapeutics and Addex 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 Addex 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 Addex Therapeutics, you can compare the effects of market volatilities on Denali Therapeutics and Addex 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 Addex Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Denali Therapeutics and Addex Therapeutics.
Diversification Opportunities for Denali Therapeutics and Addex Therapeutics
The 3 months correlation between Denali and Addex is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Denali Therapeutics and Addex Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addex 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 Addex Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addex Therapeutics has no effect on the direction of Denali Therapeutics i.e., Denali Therapeutics and Addex Therapeutics go up and down completely randomly.
Pair Corralation between Denali Therapeutics and Addex Therapeutics
Given the investment horizon of 90 days Denali Therapeutics is expected to generate 2.19 times less return on investment than Addex Therapeutics. In addition to that, Denali Therapeutics is 1.2 times more volatile than Addex Therapeutics. It trades about 0.01 of its total potential returns per unit of risk. Addex Therapeutics is currently generating about 0.02 per unit of volatility. If you would invest 583.00 in Addex Therapeutics on September 3, 2023 and sell it today you would lose (5.00) from holding Addex Therapeutics or give up 0.86% of portfolio value over 90 days.
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 January 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.
Over the last 90 days Addex Therapeutics 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 2024. The recent disarray may also be a sign of long period up-swing for the firm insiders.
Denali Therapeutics and Addex Therapeutics Volatility Contrast
Predicted Return Density
Pair Trading with Denali Therapeutics and Addex Therapeutics
The main advantage of trading using opposite Denali Therapeutics and Addex Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Denali Therapeutics position performs unexpectedly, Addex 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 Addex Therapeutics will offset losses from the drop in Addex Therapeutics' long position.
The idea behind Denali Therapeutics and Addex 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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