Correlation Between Bank of America and Direxion Daily

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

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

Diversification Opportunities for Bank of America and Direxion Daily

-0.89

Correlation Coefficient

Bank of America  Direxion Daily

Pay attention - limited upside

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

Pair Corralation between Bank of America and Direxion Daily

Considering the 90-day investment horizon Bank of America is expected to under-perform the Direxion Daily. But the stock apears to be less risky and, when comparing its historical volatility, Bank of America is 3.3 times less risky than Direxion Daily. The stock trades about -0.02 of its potential returns per unit of risk. The Direxion Daily SP is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,775  in Direxion Daily SP on December 27, 2024 and sell it today you would earn a total of  421.00  from holding Direxion Daily SP or generate 23.72% return on investment over 90 days.

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

Bank of America  vs.  Direxion Daily SP

Bank of America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Direxion Daily SP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental drivers, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of America and Direxion Daily

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

The idea behind Bank of America and Direxion Daily SP 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.