Correlation Between Direxion Daily and Coca Cola

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

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

Diversification Opportunities for Direxion Daily and Coca Cola

0.9

Correlation Coefficient

Direxion Daily  Coca Cola

Almost no diversification

The 3 months correlation between Direxion and Coca is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily FTSE and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola 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 FTSE are associated (or correlated) with Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola has no effect on the direction of Direxion Daily i.e., Direxion Daily and Coca Cola go up and down completely randomly.

Pair Corralation between Direxion Daily and Coca Cola

Given the investment horizon of 90 days Direxion Daily FTSE is expected to generate 2.26 times more return on investment than Coca Cola. However, Direxion Daily is 2.26 times more volatile than The Coca Cola. It trades about 0.18 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.19 per unit of risk. If you would invest  2,037  in Direxion Daily FTSE on December 28, 2024 and sell it today you would earn a total of  704.00  from holding Direxion Daily FTSE or generate 34.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Direxion Daily FTSE  vs.  The Coca Cola

Direxion Daily FTSE

Risk-Adjusted Performance

Good

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

Coca Cola

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Coca Cola displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and Coca Cola

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

The idea behind Direxion Daily FTSE and The Coca Cola 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.