Correlation Between Dow 2x and Direxion Monthly

Can any of the company-specific risk be diversified away by investing in both Dow 2x 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 Dow 2x and Direxion Monthly into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dow 2x Strategy and Direxion Monthly Nasdaq 100, you can compare the effects of market volatilities on Dow 2x 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 Dow 2x with a short position of Direxion Monthly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow 2x and Direxion Monthly.

Diversification Opportunities for Dow 2x and Direxion Monthly

0.86

Correlation Coefficient

Dow 2x  Direxion Monthly

Very poor diversification

The 3 months correlation between Dow and Direxion is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Dow 2x Strategy and Direxion Monthly Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Monthly Nasdaq and Dow 2x 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 Dow 2x Strategy 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 Nasdaq has no effect on the direction of Dow 2x i.e., Dow 2x and Direxion Monthly go up and down completely randomly.

Pair Corralation between Dow 2x and Direxion Monthly

Assuming the 90 days horizon Dow 2x Strategy is expected to generate 0.69 times more return on investment than Direxion Monthly. However, Dow 2x Strategy is 1.44 times less risky than Direxion Monthly. It trades about -0.05 of its potential returns per unit of risk. Direxion Monthly Nasdaq 100 is currently generating about -0.11 per unit of risk. If you would invest  16,854  in Dow 2x Strategy on December 29, 2024 and sell it today you would lose (1,005) from holding Dow 2x Strategy or give up 5.96% of portfolio value over 90 days.

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

Dow 2x Strategy  vs.  Direxion Monthly Nasdaq 100

Dow 2x Strategy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dow 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Dow 2x is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Direxion Monthly Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Monthly Nasdaq 100 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 essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Dow 2x and Direxion Monthly

The main advantage of trading using opposite Dow 2x and Direxion Monthly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 2x 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 Dow 2x Strategy and Direxion Monthly Nasdaq 100 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.