Correlation Between Dow Jones and NexGen Energy
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and NexGen Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and NexGen Energy, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of NexGen Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and NexGen Energy.
Diversification Opportunities for Dow Jones and NexGen Energy
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and NexGen is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and NexGen Energy go up and down completely randomly.
Pair Corralation between Dow Jones and NexGen Energy
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the NexGen Energy. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 7.42 times less risky than NexGen Energy. The index trades about -0.01 of its potential returns per unit of risk. The NexGen Energy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 679.00 in NexGen Energy on September 12, 2024 and sell it today you would earn a total of 106.00 from holding NexGen Energy or generate 15.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 91.3% |
| Values | Daily Returns |
Dow Jones Industrial vs. NexGen Energy
Performance |
| Timeline |
Dow Jones and NexGen Energy Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
NexGen Energy
Pair trading matchups for NexGen Energy
Pair Trading with Dow Jones and NexGen Energy
The main advantage of trading using opposite Dow Jones and NexGen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Aeye Inc | Dow Jones vs. Gentex | Dow Jones vs. Marine Products | Dow Jones vs. CarsalesCom Ltd ADR |
| NexGen Energy vs. CyberArk Software | NexGen Energy vs. Magic Software Enterprises | NexGen Energy vs. Quaker Chemical | NexGen Energy vs. Siamgas And Petrochemicals |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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