Correlation Between Direxion Daily and Putnam Focused

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

By analyzing existing cross correlation between Direxion Daily AMZN and Putnam Focused Large, you can compare the effects of market volatilities on Direxion Daily and Putnam Focused 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 Direxion Daily with a short position of Putnam Focused. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Putnam Focused.

Diversification Opportunities for Direxion Daily and Putnam Focused

0.94

Correlation Coefficient

Direxion Daily  Putnam Focused

Almost no diversification

The 3 months correlation between Direxion and Putnam is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily AMZN and Putnam Focused Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Focused Large and Direxion Daily 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 Direxion Daily AMZN are associated (or correlated) with Putnam Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Focused Large has no effect on the direction of Direxion Daily i.e., Direxion Daily and Putnam Focused go up and down completely randomly.

Pair Corralation between Direxion Daily and Putnam Focused

Given the investment horizon of 90 days Direxion Daily AMZN is expected to generate 3.17 times more return on investment than Putnam Focused. However, Direxion Daily is 3.17 times more volatile than Putnam Focused Large. It trades about 0.08 of its potential returns per unit of risk. Putnam Focused Large is currently generating about 0.08 per unit of risk. If you would invest  3,380  in Direxion Daily AMZN on September 22, 2024 and sell it today you would earn a total of  1,090  from holding Direxion Daily AMZN or generate 32.25% return on investment over 90 days.

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

Direxion Daily AMZN  vs.  Putnam Focused Large

Direxion Daily AMZN

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily AMZN are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Putnam Focused Large

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Focused Large are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Putnam Focused may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and Putnam Focused

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

The idea behind Direxion Daily AMZN and Putnam Focused Large 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.