Correlation Between NexGen Energy and Brompton Energy

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

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

Diversification Opportunities for NexGen Energy and Brompton Energy

0.77

Correlation Coefficient

NexGen Energy  Brompton Energy

Poor diversification

The 3 months correlation between NexGen and Brompton is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NexGen Energy and Brompton Energy Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brompton Energy Split 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 Brompton Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brompton Energy Split has no effect on the direction of NexGen Energy i.e., NexGen Energy and Brompton Energy go up and down completely randomly.

Pair Corralation between NexGen Energy and Brompton Energy

Assuming the 90 days trading horizon NexGen Energy is expected to under-perform the Brompton Energy. But the stock apears to be less risky and, when comparing its historical volatility, NexGen Energy is 1.48 times less risky than Brompton Energy. The stock trades about -0.46 of its potential returns per unit of risk. The Brompton Energy Split is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  634.00  in Brompton Energy Split on September 23, 2024 and sell it today you would lose (32.00) from holding Brompton Energy Split or give up 5.05% of portfolio value over 90 days.

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

NexGen Energy  vs.  Brompton Energy Split

NexGen Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 6 (%) 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.

Brompton Energy Split

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton Energy Split are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brompton Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NexGen Energy and Brompton Energy

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

The idea behind NexGen Energy and Brompton Energy Split 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.