Correlation Between Direxion Daily and Global X

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

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

Diversification Opportunities for Direxion Daily and Global X

-0.8

Correlation Coefficient

Direxion Daily  Global X

Pay attention - limited upside

The 3 months correlation between Direxion and Global is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and Global X MLP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X MLP and Direxion Daily 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 Daily SP are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X MLP has no effect on the direction of Direxion Daily i.e., Direxion Daily and Global X go up and down completely randomly.

Pair Corralation between Direxion Daily and Global X

Given the investment horizon of 90 days Direxion Daily SP is expected to generate 2.18 times more return on investment than Global X. However, Direxion Daily is 2.18 times more volatile than Global X MLP. It trades about 0.1 of its potential returns per unit of risk. Global X MLP is currently generating about 0.03 per unit of risk. If you would invest  937.00  in Direxion Daily SP on December 2, 2024 and sell it today you would earn a total of  167.00  from holding Direxion Daily SP or generate 17.82% return on investment over 90 days.

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

Direxion Daily SP  vs.  Global X MLP

Direxion Daily SP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward indicators, Direxion Daily reported solid returns over the last few months and may actually be approaching a breakup point.

Global X MLP

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global X MLP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Global X 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 Daily and Global X

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

The idea behind Direxion Daily SP and Global X MLP 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.