Correlation Between MicroSectors Travel and Direxion Daily

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

By analyzing existing cross correlation between MicroSectors Travel 3X and Direxion Daily Homebuilders, you can compare the effects of market volatilities on MicroSectors Travel 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 MicroSectors Travel with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Travel and Direxion Daily.

Diversification Opportunities for MicroSectors Travel and Direxion Daily

0.61

Correlation Coefficient

MicroSectors Travel  Direxion Daily

Poor diversification

The 3 months correlation between MicroSectors and Direxion is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Travel 3X and Direxion Daily Homebuilders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Homeb and MicroSectors Travel 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 MicroSectors Travel 3X 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 Homeb has no effect on the direction of MicroSectors Travel i.e., MicroSectors Travel and Direxion Daily go up and down completely randomly.

Pair Corralation between MicroSectors Travel and Direxion Daily

Given the investment horizon of 90 days MicroSectors Travel 3X is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, MicroSectors Travel 3X is 1.14 times less risky than Direxion Daily. The etf trades about -0.08 of its potential returns per unit of risk. The Direxion Daily Homebuilders is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,329  in Direxion Daily Homebuilders on September 26, 2024 and sell it today you would earn a total of  5,517  from holding Direxion Daily Homebuilders or generate 165.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

MicroSectors Travel 3X  vs.  Direxion Daily Homebuilders

MicroSectors Travel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors Travel 3X has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Direxion Daily Homeb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Homebuilders has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Etf's forward indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

Pair Trading with MicroSectors Travel and Direxion Daily

The main advantage of trading using opposite MicroSectors Travel and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Travel 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 MicroSectors Travel 3X and Direxion Daily Homebuilders 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.