Correlation Between Forum Energy and NexGen Energy

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

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

Diversification Opportunities for Forum Energy and NexGen Energy

0.8

Correlation Coefficient

Forum Energy  NexGen Energy

Very poor diversification

The 3 months correlation between Forum and NexGen is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Forum Energy Metals and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy and Forum 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 Forum Energy Metals 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 Forum Energy i.e., Forum Energy and NexGen Energy go up and down completely randomly.

Pair Corralation between Forum Energy and NexGen Energy

Assuming the 90 days horizon Forum Energy Metals is expected to generate 2.62 times more return on investment than NexGen Energy. However, Forum Energy is 2.62 times more volatile than NexGen Energy. It trades about 0.01 of its potential returns per unit of risk. NexGen Energy is currently generating about -0.12 per unit of risk. If you would invest  7.00  in Forum Energy Metals on December 26, 2024 and sell it today you would lose (1.50) from holding Forum Energy Metals or give up 21.43% of portfolio value over 90 days.

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

Forum Energy Metals  vs.  NexGen Energy

Forum Energy Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Forum Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Forum Energy is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Forum Energy and NexGen Energy

The main advantage of trading using opposite Forum Energy and NexGen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Forum Energy 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 Forum Energy Metals 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.