Correlation Between BP PLC and NexGen Energy

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

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

Diversification Opportunities for BP PLC and NexGen Energy

-0.63

Correlation Coefficient

BP PLC  NexGen Energy

Excellent diversification

The 3 months correlation between BP PLC and NexGen is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy and BP PLC 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 BP PLC ADR are associated (or correlated) with NexGen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexGen Energy has no effect on the direction of BP PLC i.e., BP PLC and NexGen Energy go up and down completely randomly.

Pair Corralation between BP PLC and NexGen Energy

Allowing for the 90-day total investment horizon BP PLC ADR is expected to generate 0.38 times more return on investment than NexGen Energy. However, BP PLC ADR is 2.63 times less risky than NexGen Energy. It trades about 0.21 of its potential returns per unit of risk. NexGen Energy is currently generating about -0.11 per unit of risk. If you would invest  2,856  in BP PLC ADR on December 27, 2024 and sell it today you would earn a total of  586.00  from holding BP PLC ADR or generate 20.52% return on investment over 90 days.

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

BP PLC ADR  vs.  NexGen Energy

BP PLC ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BP PLC ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, BP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

NexGen Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days NexGen Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with BP PLC and NexGen Energy

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

The idea behind BP PLC ADR and NexGen Energy 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 Transaction History module to view history of all your transactions and understand their impact on performance.