Correlation Between Volatility Shares and Direxion

Can any of the company-specific risk be diversified away by investing in both Volatility Shares and Direxion 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 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, you can compare the effects of market volatilities on Volatility Shares and Direxion 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volatility Shares and Direxion.

Diversification Opportunities for Volatility Shares and Direxion

-0.67

Correlation Coefficient

Volatility Shares  Direxion

Excellent diversification

The 3 months correlation between Volatility and Direxion is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and Direxion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion has no effect on the direction of Volatility Shares i.e., Volatility Shares and Direxion go up and down completely randomly.

Pair Corralation between Volatility Shares and Direxion

If you would invest  2,505  in Volatility Shares Trust on September 18, 2024 and sell it today you would earn a total of  4,430  from holding Volatility Shares Trust or generate 176.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

Volatility Shares Trust  vs.  Direxion

Volatility Shares Trust

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Volatility Shares showed solid returns over the last few months and may actually be approaching a breakup point.

Direxion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Direxion is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Volatility Shares and Direxion

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

The idea behind Volatility Shares Trust and Direxion 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 Stocks Directory module to find actively traded stocks across global markets.