Correlation Between Broadcom and NexGen Energy

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

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

Diversification Opportunities for Broadcom and NexGen Energy

0.76

Correlation Coefficient

Broadcom  NexGen Energy

Poor diversification

The 3 months correlation between Broadcom and NexGen is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Broadcom and NexGen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexGen Energy and Broadcom 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 Broadcom 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 Broadcom i.e., Broadcom and NexGen Energy go up and down completely randomly.

Pair Corralation between Broadcom and NexGen Energy

Assuming the 90 days horizon Broadcom is expected to generate 0.58 times more return on investment than NexGen Energy. However, Broadcom is 1.72 times less risky than NexGen Energy. It trades about 0.33 of its potential returns per unit of risk. NexGen Energy is currently generating about 0.18 per unit of risk. If you would invest  14,713  in Broadcom on April 20, 2025 and sell it today you would earn a total of  9,662  from holding Broadcom or generate 65.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Broadcom  vs.  NexGen Energy

Broadcom

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Broadcom reported solid returns over the last few months and may actually be approaching a breakup point.

NexGen Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NexGen Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NexGen Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Broadcom and NexGen Energy

The main advantage of trading using opposite Broadcom and NexGen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadcom 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.

The idea behind Broadcom and NexGen Energy 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.