Correlation Between Ford and Direxion Daily

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

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

Diversification Opportunities for Ford and Direxion Daily

-0.31

Correlation Coefficient

Ford  Direxion Daily

Very good diversification

The 3 months correlation between Ford and Direxion is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Direxion Daily CSI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily CSI and Ford 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 Ford Motor 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 CSI has no effect on the direction of Ford i.e., Ford and Direxion Daily go up and down completely randomly.

Pair Corralation between Ford and Direxion Daily

Taking into account the 90-day investment horizon Ford is expected to generate 1.77 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, Ford Motor is 2.14 times less risky than Direxion Daily. It trades about 0.01 of its potential returns per unit of risk. Direxion Daily CSI is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,903  in Direxion Daily CSI on September 20, 2024 and sell it today you would lose (1,474) from holding Direxion Daily CSI or give up 30.06% of portfolio value over 90 days.

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

Ford Motor  vs.  Direxion Daily CSI

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Direxion Daily CSI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily CSI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Direxion Daily sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Direxion Daily

The main advantage of trading using opposite Ford and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor and Direxion Daily CSI 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.