Correlation Between Volatility Shares and Direxion Daily

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

By analyzing existing cross correlation between Volatility Shares Trust and Direxion Daily SP, you can compare the effects of market volatilities on Volatility Shares and Direxion Daily 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 Volatility Shares with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volatility Shares and Direxion Daily.

Diversification Opportunities for Volatility Shares and Direxion Daily

0.82

Correlation Coefficient

Volatility Shares  Direxion Daily

Very poor diversification

The 3 months correlation between Volatility and Direxion is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and Direxion Daily SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP and Volatility Shares 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 Volatility Shares Trust are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily SP has no effect on the direction of Volatility Shares i.e., Volatility Shares and Direxion Daily go up and down completely randomly.

Pair Corralation between Volatility Shares and Direxion Daily

Given the investment horizon of 90 days Volatility Shares Trust is expected to under-perform the Direxion Daily. In addition to that, Volatility Shares is 1.4 times more volatile than Direxion Daily SP. It trades about -0.07 of its total potential returns per unit of risk. Direxion Daily SP is currently generating about -0.08 per unit of volatility. If you would invest  8,946  in Direxion Daily SP on December 30, 2024 and sell it today you would lose (2,039) from holding Direxion Daily SP or give up 22.79% of portfolio value over 90 days.

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

Volatility Shares Trust  vs.  Direxion Daily SP

Volatility Shares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Volatility Shares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic 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 ETF investors.

Direxion Daily SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's fundamental drivers remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with Volatility Shares and Direxion Daily

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

The idea behind Volatility Shares Trust and Direxion Daily 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.