Correlation Between MicroSectors FANG and Direxion Shares

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

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

Diversification Opportunities for MicroSectors FANG and Direxion Shares

0.09

Correlation Coefficient

MicroSectors FANG  Direxion Shares

Significant diversification

The 3 months correlation between MicroSectors and Direxion is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF and MicroSectors FANG 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 FANG Index are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Direxion Shares go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Direxion Shares

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 1.61 times more return on investment than Direxion Shares. However, MicroSectors FANG is 1.61 times more volatile than Direxion Shares ETF. It trades about 0.02 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.01 per unit of risk. If you would invest  52,416  in MicroSectors FANG Index on December 2, 2024 and sell it today you would lose (66.00) from holding MicroSectors FANG Index or give up 0.13% of portfolio value over 90 days.

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

MicroSectors FANG Index  vs.  Direxion Shares ETF

MicroSectors FANG Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Direxion Shares ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Shares ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Direxion Shares is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MicroSectors FANG and Direxion Shares

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

The idea behind MicroSectors FANG Index and Direxion Shares ETF 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.