Correlation Between Direxion Daily and Bank of Montreal

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

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

Diversification Opportunities for Direxion Daily and Bank of Montreal

0.77

Correlation Coefficient

Direxion Daily  Bank of Montreal

Poor diversification

The 3 months correlation between Direxion and Bank is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal 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 SP are associated (or correlated) with Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of Direxion Daily i.e., Direxion Daily and Bank of Montreal go up and down completely randomly.

Pair Corralation between Direxion Daily and Bank of Montreal

Given the investment horizon of 90 days Direxion Daily SP is expected to under-perform the Bank of Montreal. But the etf apears to be less risky and, when comparing its historical volatility, Direxion Daily SP is 1.04 times less risky than Bank of Montreal. The etf trades about -0.09 of its potential returns per unit of risk. The Bank of Montreal is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,612  in Bank of Montreal on December 20, 2024 and sell it today you would lose (186.00) from holding Bank of Montreal or give up 7.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	35.0%
Values	Daily Returns

Direxion Daily SP  vs.  Bank of Montreal

Direxion Daily SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Etf's fundamental drivers remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

Bank of Montreal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Montreal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with Direxion Daily and Bank of Montreal

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

The idea behind Direxion Daily SP and Bank of Montreal 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.