Correlation Between NexGen Energy and Enbridge Pref

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

By analyzing existing cross correlation between NexGen Energy and Enbridge Pref 5, you can compare the effects of market volatilities on NexGen Energy and Enbridge Pref 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 NexGen Energy with a short position of Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of NexGen Energy and Enbridge Pref.

Diversification Opportunities for NexGen Energy and Enbridge Pref

0.94

Correlation Coefficient

NexGen Energy  Enbridge Pref

Almost no diversification

The 3 months correlation between NexGen and Enbridge is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding NexGen Energy and Enbridge Pref 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 5 and NexGen 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 NexGen Energy are associated (or correlated) with Enbridge Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref 5 has no effect on the direction of NexGen Energy i.e., NexGen Energy and Enbridge Pref go up and down completely randomly.

Pair Corralation between NexGen Energy and Enbridge Pref

Assuming the 90 days trading horizon NexGen Energy is expected to generate 4.31 times more return on investment than Enbridge Pref. However, NexGen Energy is 4.31 times more volatile than Enbridge Pref 5. It trades about 0.06 of its potential returns per unit of risk. Enbridge Pref 5 is currently generating about 0.12 per unit of risk. If you would invest  699.00  in NexGen Energy on September 12, 2024 and sell it today you would earn a total of  433.00  from holding NexGen Energy or generate 61.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.79%
Values	Daily Returns

NexGen Energy  vs.  Enbridge Pref 5

NexGen Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, NexGen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Enbridge Pref 5

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Enbridge Pref may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NexGen Energy and Enbridge Pref

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

The idea behind NexGen Energy and Enbridge Pref 5 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.