Correlation Between Agilent Technologies and Denali Therapeutics

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

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

Diversification Opportunities for Agilent Technologies and Denali Therapeutics

0.64

Correlation Coefficient

Agilent Technologies  Denali Therapeutics

Poor diversification

The 3 months correlation between Agilent and Denali is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Agilent Technologies and Denali Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denali Therapeutics and Agilent Technologies 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 Agilent Technologies 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 Agilent Technologies i.e., Agilent Technologies and Denali Therapeutics go up and down completely randomly.

Pair Corralation between Agilent Technologies and Denali Therapeutics

Taking into account the 90-day investment horizon Agilent Technologies is expected to under-perform the Denali Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Agilent Technologies is 1.82 times less risky than Denali Therapeutics. The stock trades about -0.05 of its potential returns per unit of risk. The Denali Therapeutics is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,520  in Denali Therapeutics on March 1, 2025 and sell it today you would lose (166.00) from holding Denali Therapeutics or give up 10.92% of portfolio value over 90 days.

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

Agilent Technologies  vs.  Denali Therapeutics

Agilent Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Agilent Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Denali Therapeutics

Risk-Adjusted Performance

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.

Pair Trading with Agilent Technologies and Denali Therapeutics

The main advantage of trading using opposite Agilent Technologies and Denali Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agilent Technologies 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 Agilent Technologies 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.