Correlation Between Ultra Nasdaq and Direxion Monthly

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

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

Diversification Opportunities for Ultra Nasdaq and Direxion Monthly

0.87

Correlation Coefficient

Ultra Nasdaq  Direxion Monthly

Very poor diversification

The 3 months correlation between Ultra and Direxion is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Nasdaq 100 Profunds and Direxion Monthly Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Monthly Small and Ultra Nasdaq 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 Ultra Nasdaq 100 Profunds 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 Small has no effect on the direction of Ultra Nasdaq i.e., Ultra Nasdaq and Direxion Monthly go up and down completely randomly.

Pair Corralation between Ultra Nasdaq and Direxion Monthly

Assuming the 90 days horizon Ultra Nasdaq is expected to generate 1.23 times less return on investment than Direxion Monthly. But when comparing it to its historical volatility, Ultra Nasdaq 100 Profunds is 1.06 times less risky than Direxion Monthly. It trades about 0.13 of its potential returns per unit of risk. Direxion Monthly Small is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  8,204  in Direxion Monthly Small on August 31, 2024 and sell it today you would earn a total of  1,801  from holding Direxion Monthly Small or generate 21.95% return on investment over 90 days.

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

Ultra Nasdaq 100 Profunds  vs.  Direxion Monthly Small

Ultra Nasdaq 100

Risk-Adjusted Performance

10 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Nasdaq 100 Profunds are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Nasdaq showed solid returns over the last few months and may actually be approaching a breakup point.

Direxion Monthly Small

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Monthly Small are ranked lower than 12 (%) 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.

Pair Trading with Ultra Nasdaq and Direxion Monthly

The main advantage of trading using opposite Ultra Nasdaq and Direxion Monthly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Nasdaq 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 Ultra Nasdaq 100 Profunds and Direxion Monthly Small 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.