Correlation Between GrafTech International and NexGen Energy

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

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

Diversification Opportunities for GrafTech International and NexGen Energy

0.62

Correlation Coefficient

GrafTech International  NexGen Energy

Poor diversification

The 3 months correlation between GrafTech and NexGen is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding GrafTech International and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy and GrafTech International 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 GrafTech International 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 GrafTech International i.e., GrafTech International and NexGen Energy go up and down completely randomly.

Pair Corralation between GrafTech International and NexGen Energy

Assuming the 90 days horizon GrafTech International is expected to under-perform the NexGen Energy. But the stock apears to be less risky and, when comparing its historical volatility, GrafTech International is 1.12 times less risky than NexGen Energy. The stock trades about -0.22 of its potential returns per unit of risk. The NexGen Energy is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  749.00  in NexGen Energy on October 13, 2024 and sell it today you would lose (85.00) from holding NexGen Energy or give up 11.35% of portfolio value over 90 days.

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

GrafTech International  vs.  NexGen Energy

GrafTech International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GrafTech International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, GrafTech International reported solid returns over the last few months and may actually be approaching a breakup point.

NexGen Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NexGen Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GrafTech International and NexGen Energy

The main advantage of trading using opposite GrafTech International and NexGen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GrafTech International 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 GrafTech International 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.