Correlation Between Dreyfus Natural and Direxion Daily

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

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

Diversification Opportunities for Dreyfus Natural and Direxion Daily

0.06

Correlation Coefficient

Dreyfus Natural  Direxion Daily

Significant diversification

The 3 months correlation between Dreyfus and Direxion is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dreyfus Natural Resources and Direxion Daily FTSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily FTSE and Dreyfus Natural 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 Dreyfus Natural Resources 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 FTSE has no effect on the direction of Dreyfus Natural i.e., Dreyfus Natural and Direxion Daily go up and down completely randomly.

Pair Corralation between Dreyfus Natural and Direxion Daily

Assuming the 90 days horizon Dreyfus Natural Resources is expected to under-perform the Direxion Daily. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dreyfus Natural Resources is 1.56 times less risky than Direxion Daily. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Direxion Daily FTSE is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,165  in Direxion Daily FTSE on November 27, 2024 and sell it today you would earn a total of  602.00  from holding Direxion Daily FTSE or generate 27.81% return on investment over 90 days.

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

Dreyfus Natural Resources  vs.  Direxion Daily FTSE

Dreyfus Natural Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dreyfus Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Direxion Daily FTSE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily FTSE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dreyfus Natural and Direxion Daily

The main advantage of trading using opposite Dreyfus Natural and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dreyfus Natural 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 Dreyfus Natural Resources and Direxion Daily FTSE 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.