Correlation Between Enbridge Pref and NexGen Energy

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

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

Diversification Opportunities for Enbridge Pref and NexGen Energy

0.7

Correlation Coefficient

Enbridge Pref  NexGen Energy

Poor diversification

The 3 months correlation between Enbridge and NexGen is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref L and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy and Enbridge Pref 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 Enbridge Pref L 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 Enbridge Pref i.e., Enbridge Pref and NexGen Energy go up and down completely randomly.

Pair Corralation between Enbridge Pref and NexGen Energy

Assuming the 90 days trading horizon Enbridge Pref is expected to generate 8.16 times less return on investment than NexGen Energy. But when comparing it to its historical volatility, Enbridge Pref L is 4.32 times less risky than NexGen Energy. It trades about 0.15 of its potential returns per unit of risk. NexGen Energy is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  743.00  in NexGen Energy on September 1, 2024 and sell it today you would earn a total of  448.00  from holding NexGen Energy or generate 60.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Enbridge Pref L  vs.  NexGen Energy

Enbridge Pref L

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref L are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Enbridge Pref is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

NexGen Energy

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, NexGen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge Pref and NexGen Energy

The main advantage of trading using opposite Enbridge Pref and NexGen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enbridge Pref 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 Enbridge Pref L 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.