Correlation Between Direxion Shares and Vanguard STAR

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

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

Diversification Opportunities for Direxion Shares and Vanguard STAR

-0.71

Correlation Coefficient

Direxion Shares  Vanguard STAR

Pay attention - limited upside

The 3 months correlation between Direxion and Vanguard is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Shares ETF and Vanguard STAR Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard STAR Funds and Direxion 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 Direxion Shares ETF are associated (or correlated) with Vanguard STAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard STAR Funds has no effect on the direction of Direxion Shares i.e., Direxion Shares and Vanguard STAR go up and down completely randomly.

Pair Corralation between Direxion Shares and Vanguard STAR

Assuming the 90 days trading horizon Direxion Shares ETF is expected to under-perform the Vanguard STAR. In addition to that, Direxion Shares is 1.88 times more volatile than Vanguard STAR Funds. It trades about -0.05 of its total potential returns per unit of risk. Vanguard STAR Funds is currently generating about 0.01 per unit of volatility. If you would invest  128,616  in Vanguard STAR Funds on December 23, 2024 and sell it today you would earn a total of  473.00  from holding Vanguard STAR Funds or generate 0.37% return on investment over 90 days.

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

Direxion Shares ETF  vs.  Vanguard STAR Funds

Direxion Shares ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Shares ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Vanguard STAR Funds

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Direxion Shares and Vanguard STAR

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

The idea behind Direxion Shares ETF and Vanguard STAR Funds 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.