Correlation Between Vanguard Bond and Direxion Shares

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

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

Diversification Opportunities for Vanguard Bond and Direxion Shares

0.16

Correlation Coefficient

Vanguard Bond  Direxion Shares

Average diversification

The 3 months correlation between Vanguard and Direxion is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Bond Index and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF and Vanguard Bond 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 Vanguard Bond Index are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of Vanguard Bond i.e., Vanguard Bond and Direxion Shares go up and down completely randomly.

Pair Corralation between Vanguard Bond and Direxion Shares

Assuming the 90 days trading horizon Vanguard Bond Index is expected to under-perform the Direxion Shares. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Bond Index is 1.98 times less risky than Direxion Shares. The etf trades about -0.02 of its potential returns per unit of risk. The Direxion Shares ETF is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  60,750  in Direxion Shares ETF on December 23, 2024 and sell it today you would earn a total of  7,028  from holding Direxion Shares ETF or generate 11.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	72.13%
Values	Daily Returns

Vanguard Bond Index  vs.  Direxion Shares ETF

Vanguard Bond Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Bond Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Vanguard Bond is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Direxion Shares ETF

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Shares ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Direxion Shares showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Bond and Direxion Shares

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

The idea behind Vanguard Bond Index and Direxion Shares ETF 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.

Check out your portfolio center.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.