Correlation Between Direxion Daily and BMO Global

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

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

Diversification Opportunities for Direxion Daily and BMO Global

0.91

Correlation Coefficient

Direxion Daily  BMO Global

Almost no diversification

The 3 months correlation between Direxion and BMO is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and BMO Global Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Communications 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 Mid are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Communications has no effect on the direction of Direxion Daily i.e., Direxion Daily and BMO Global go up and down completely randomly.

Pair Corralation between Direxion Daily and BMO Global

Given the investment horizon of 90 days Direxion Daily Mid is expected to under-perform the BMO Global. In addition to that, Direxion Daily is 3.29 times more volatile than BMO Global Communications. It trades about -0.07 of its total potential returns per unit of risk. BMO Global Communications is currently generating about 0.32 per unit of volatility. If you would invest  3,927  in BMO Global Communications on September 12, 2024 and sell it today you would earn a total of  210.00  from holding BMO Global Communications or generate 5.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Direxion Daily Mid  vs.  BMO Global Communications

Direxion Daily Mid

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Mid are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

BMO Global Communications

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Communications are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Global displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and BMO Global

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

The idea behind Direxion Daily Mid and BMO Global Communications 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.