Correlation Between Transamerica Financial and Direxion Monthly

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

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

Diversification Opportunities for Transamerica Financial and Direxion Monthly

0.77

Correlation Coefficient

Transamerica Financial  Direxion Monthly

Poor diversification

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

Pair Corralation between Transamerica Financial and Direxion Monthly

Assuming the 90 days horizon Transamerica Financial Life is expected to generate 0.84 times more return on investment than Direxion Monthly. However, Transamerica Financial Life is 1.2 times less risky than Direxion Monthly. It trades about -0.34 of its potential returns per unit of risk. Direxion Monthly Sp is currently generating about -0.33 per unit of risk. If you would invest  1,234  in Transamerica Financial Life on October 5, 2024 and sell it today you would lose (174.00) from holding Transamerica Financial Life or give up 14.1% of portfolio value over 90 days.

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

Transamerica Financial Life  vs.  Direxion Monthly Sp

Transamerica Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Financial Life has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Direxion Monthly

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Monthly Sp has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Direxion Monthly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Transamerica Financial and Direxion Monthly

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

The idea behind Transamerica Financial Life and Direxion Monthly 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.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.