Correlation Between NexGen Energy and Cameco Corp

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

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

Diversification Opportunities for NexGen Energy and Cameco Corp

0.99

Correlation Coefficient

NexGen Energy  Cameco Corp

No risk reduction

The 3 months correlation between NexGen and Cameco is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding NexGen Energy and Cameco Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cameco Corp 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 Cameco Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cameco Corp has no effect on the direction of NexGen Energy i.e., NexGen Energy and Cameco Corp go up and down completely randomly.

Pair Corralation between NexGen Energy and Cameco Corp

Assuming the 90 days trading horizon NexGen Energy is expected to generate 1.03 times less return on investment than Cameco Corp. In addition to that, NexGen Energy is 1.12 times more volatile than Cameco Corp. It trades about 0.24 of its total potential returns per unit of risk. Cameco Corp is currently generating about 0.27 per unit of volatility. If you would invest  5,473  in Cameco Corp on September 13, 2024 and sell it today you would earn a total of  2,712  from holding Cameco Corp or generate 49.55% return on investment over 90 days.

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

NexGen Energy  vs.  Cameco Corp

NexGen Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 18 (%) 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.

Cameco Corp

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cameco Corp are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Cameco Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NexGen Energy and Cameco Corp

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

The idea behind NexGen Energy and Cameco Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.