Correlation Between Exxon and Denali Therapeutics

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

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

Diversification Opportunities for Exxon and Denali Therapeutics

-0.58

Correlation Coefficient

Exxon  Denali Therapeutics

Excellent diversification

The 3 months correlation between Exxon and Denali is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Denali Therapeutics go up and down completely randomly.

Pair Corralation between Exxon and Denali Therapeutics

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the Denali Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil Corp is 3.89 times less risky than Denali Therapeutics. The stock trades about -0.04 of its potential returns per unit of risk. The Denali Therapeutics is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,616  in Denali Therapeutics on March 2, 2024 and sell it today you would earn a total of  230.00  from holding Denali Therapeutics or generate 14.23% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Denali Therapeutics

Exxon Mobil Corp

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in July 2024.

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 latest uncertain performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Exxon and Denali Therapeutics

The main advantage of trading using opposite Exxon and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.