Correlation Between Direxion Daily and United States

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

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

Diversification Opportunities for Direxion Daily and United States

0.47

Correlation Coefficient

Direxion Daily  United States

Very weak diversification

The 3 months correlation between Direxion and United is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Energy and United States Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Oil 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 Energy are associated (or correlated) with United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Oil has no effect on the direction of Direxion Daily i.e., Direxion Daily and United States go up and down completely randomly.

Pair Corralation between Direxion Daily and United States

Considering the 90-day investment horizon Direxion Daily Energy is expected to generate 1.71 times more return on investment than United States. However, Direxion Daily is 1.71 times more volatile than United States Oil. It trades about 0.12 of its potential returns per unit of risk. United States Oil is currently generating about 0.01 per unit of risk. If you would invest  5,384  in Direxion Daily Energy on December 30, 2024 and sell it today you would earn a total of  993.00  from holding Direxion Daily Energy or generate 18.44% return on investment over 90 days.

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

Direxion Daily Energy  vs.  United States Oil

Direxion Daily Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Direxion Daily showed solid returns over the last few months and may actually be approaching a breakup point.

United States Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days United States Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, United States is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and United States

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

The idea behind Direxion Daily Energy and United States Oil 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.