Correlation Between Direxion Monthly and The Brown

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

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

Diversification Opportunities for Direxion Monthly and The Brown

0.89

Correlation Coefficient

Direxion Monthly  The Brown

Very poor diversification

The 3 months correlation between Direxion and The is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Monthly Nasdaq 100 and The Brown Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Capital and Direxion Monthly 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 Monthly Nasdaq 100 are associated (or correlated) with The Brown. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Capital has no effect on the direction of Direxion Monthly i.e., Direxion Monthly and The Brown go up and down completely randomly.

Pair Corralation between Direxion Monthly and The Brown

Assuming the 90 days horizon Direxion Monthly Nasdaq 100 is expected to generate 1.97 times more return on investment than The Brown. However, Direxion Monthly is 1.97 times more volatile than The Brown Capital. It trades about 0.23 of its potential returns per unit of risk. The Brown Capital is currently generating about 0.04 per unit of risk. If you would invest  8,147  in Direxion Monthly Nasdaq 100 on May 4, 2025 and sell it today you would earn a total of  1,920  from holding Direxion Monthly Nasdaq 100 or generate 23.57% return on investment over 90 days.

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

Direxion Monthly Nasdaq 100  vs.  The Brown Capital

Direxion Monthly Nasdaq

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Monthly Nasdaq 100 are ranked lower than 17 (%) 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.

Brown Capital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Brown Capital are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, The Brown is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Monthly and The Brown

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

The idea behind Direxion Monthly Nasdaq 100 and The Brown Capital 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.