Correlation Between Direxion Monthly and Provident Trust

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

By analyzing existing cross correlation between Direxion Monthly Nasdaq 100 and Provident Trust Strategy, you can compare the effects of market volatilities on Direxion Monthly and Provident Trust 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 Monthly with a short position of Provident Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Monthly and Provident Trust.

Diversification Opportunities for Direxion Monthly and Provident Trust

0.83

Correlation Coefficient

Direxion Monthly  Provident Trust

Very poor diversification

The 3 months correlation between Direxion and Provident is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Monthly Nasdaq 100 and Provident Trust Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Trust Strategy and Direxion Monthly 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 Monthly Nasdaq 100 are associated (or correlated) with Provident Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Trust Strategy has no effect on the direction of Direxion Monthly i.e., Direxion Monthly and Provident Trust go up and down completely randomly.

Pair Corralation between Direxion Monthly and Provident Trust

Assuming the 90 days horizon Direxion Monthly Nasdaq 100 is expected to generate 2.4 times more return on investment than Provident Trust. However, Direxion Monthly is 2.4 times more volatile than Provident Trust Strategy. It trades about 0.12 of its potential returns per unit of risk. Provident Trust Strategy is currently generating about 0.07 per unit of risk. If you would invest  3,328  in Direxion Monthly Nasdaq 100 on September 25, 2024 and sell it today you would earn a total of  6,254  from holding Direxion Monthly Nasdaq 100 or generate 187.92% return on investment over 90 days.

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

Direxion Monthly Nasdaq 100  vs.  Provident Trust Strategy

Direxion Monthly Nasdaq

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Monthly Nasdaq 100 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Direxion Monthly showed solid returns over the last few months and may actually be approaching a breakup point.

Provident Trust Strategy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Trust Strategy are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Provident Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Monthly and Provident Trust

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

The idea behind Direxion Monthly Nasdaq 100 and Provident Trust Strategy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.