Correlation Between Innovator MSCI and Direxion Daily

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

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

Diversification Opportunities for Innovator MSCI and Direxion Daily

0.67

Correlation Coefficient

Innovator MSCI  Direxion Daily

Poor diversification

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

Pair Corralation between Innovator MSCI and Direxion Daily

Given the investment horizon of 90 days Innovator MSCI is expected to generate 16.93 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, Innovator MSCI Emerging is 5.23 times less risky than Direxion Daily. It trades about 0.06 of its potential returns per unit of risk. Direxion Daily MSCI is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,199  in Direxion Daily MSCI on December 22, 2024 and sell it today you would earn a total of  1,426  from holding Direxion Daily MSCI or generate 33.96% return on investment over 90 days.

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

Innovator MSCI Emerging  vs.  Direxion Daily MSCI

Innovator MSCI Emerging

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator MSCI Emerging are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Innovator MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Direxion Daily MSCI

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily MSCI are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Innovator MSCI and Direxion Daily

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

The idea behind Innovator MSCI Emerging and Direxion Daily MSCI 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.