Correlation Between Direxion Daily and NATO

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

By analyzing existing cross correlation between Direxion Daily Industrials and NATO, you can compare the effects of market volatilities on Direxion Daily and NATO 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 NATO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and NATO.

Diversification Opportunities for Direxion Daily and NATO

-0.14

Correlation Coefficient

Direxion Daily  NATO

Good diversification

The 3 months correlation between Direxion and NATO is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Industrials and NATO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATO 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 Industrials are associated (or correlated) with NATO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATO has no effect on the direction of Direxion Daily i.e., Direxion Daily and NATO go up and down completely randomly.

Pair Corralation between Direxion Daily and NATO

Given the investment horizon of 90 days Direxion Daily Industrials is expected to generate 2.12 times more return on investment than NATO. However, Direxion Daily is 2.12 times more volatile than NATO. It trades about 0.19 of its potential returns per unit of risk. NATO is currently generating about 0.12 per unit of risk. If you would invest  5,359  in Direxion Daily Industrials on September 5, 2024 and sell it today you would earn a total of  1,882  from holding Direxion Daily Industrials or generate 35.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	59.38%
Values	Daily Returns

Direxion Daily Industrials  vs.  NATO

Direxion Daily Indus

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Industrials are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

NATO

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NATO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, NATO may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and NATO

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

The idea behind Direxion Daily Industrials and NATO 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..