Correlation Between Cenovus Energy and Denali Therapeutics

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

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

Diversification Opportunities for Cenovus Energy and Denali Therapeutics

-0.52

Correlation Coefficient

Cenovus Energy  Denali Therapeutics

Excellent diversification

The 3 months correlation between Cenovus and Denali is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Cenovus Energy and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and Cenovus Energy 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 Cenovus Energy 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 Cenovus Energy i.e., Cenovus Energy and Denali Therapeutics go up and down completely randomly.

Pair Corralation between Cenovus Energy and Denali Therapeutics

Considering the 90-day investment horizon Cenovus Energy is expected to generate 0.39 times more return on investment than Denali Therapeutics. However, Cenovus Energy is 2.58 times less risky than Denali Therapeutics. It trades about 0.25 of its potential returns per unit of risk. Denali Therapeutics is currently generating about -0.01 per unit of risk. If you would invest  1,708  in Cenovus Energy on February 28, 2024 and sell it today you would earn a total of  368.10  from holding Cenovus Energy or generate 21.55% return on investment over 90 days.

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

Cenovus Energy  vs.  Denali Therapeutics

Cenovus Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cenovus Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Cenovus Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Cenovus Energy and Denali Therapeutics

The main advantage of trading using opposite Cenovus Energy and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cenovus Energy 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 Cenovus Energy 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..