Correlation Between NexGen Energy and Denison Mines

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

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

Diversification Opportunities for NexGen Energy and Denison Mines

0.89

Correlation Coefficient

NexGen Energy  Denison Mines

Very poor diversification

The 3 months correlation between NexGen and Denison is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding NexGen Energy and Denison Mines Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denison Mines 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 Denison Mines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Denison Mines Corp has no effect on the direction of NexGen Energy i.e., NexGen Energy and Denison Mines go up and down completely randomly.

Pair Corralation between NexGen Energy and Denison Mines

Considering the 90-day investment horizon NexGen Energy is expected to generate 1.16 times more return on investment than Denison Mines. However, NexGen Energy is 1.16 times more volatile than Denison Mines Corp. It trades about 0.06 of its potential returns per unit of risk. Denison Mines Corp is currently generating about 0.03 per unit of risk. If you would invest  759.00  in NexGen Energy on January 26, 2024 and sell it today you would earn a total of  22.00  from holding NexGen Energy or generate 2.9% return on investment over 90 days.

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

NexGen Energy  vs.  Denison Mines Corp

NexGen Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, NexGen Energy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Denison Mines Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Denison Mines Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Denison Mines is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NexGen Energy and Denison Mines

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

The idea behind NexGen Energy and Denison Mines 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.