Correlation Between Denali Therapeutics and Edesa Biotech

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

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

Diversification Opportunities for Denali Therapeutics and Edesa Biotech

-0.31

Correlation Coefficient

Denali Therapeutics  Edesa Biotech

Very good diversification

The 3 months correlation between Denali and Edesa is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Denali Therapeutics and Edesa Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edesa Biotech 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 Edesa Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edesa Biotech has no effect on the direction of Denali Therapeutics i.e., Denali Therapeutics and Edesa Biotech go up and down completely randomly.

Pair Corralation between Denali Therapeutics and Edesa Biotech

Given the investment horizon of 90 days Denali Therapeutics is expected to under-perform the Edesa Biotech. But the stock apears to be less risky and, when comparing its historical volatility, Denali Therapeutics is 1.48 times less risky than Edesa Biotech. The stock trades about -0.36 of its potential returns per unit of risk. The Edesa Biotech is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  418.00  in Edesa Biotech on January 24, 2024 and sell it today you would earn a total of  20.00  from holding Edesa Biotech or generate 4.78% return on investment over 90 days.

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

Denali Therapeutics  vs.  Edesa Biotech

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.

Edesa Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edesa Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Edesa Biotech is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Denali Therapeutics and Edesa Biotech

The main advantage of trading using opposite Denali Therapeutics and Edesa Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Denali Therapeutics position performs unexpectedly, Edesa Biotech 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 Edesa Biotech will offset losses from the drop in Edesa Biotech's long position.

The idea behind Denali Therapeutics and Edesa Biotech 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.