Correlation Between GM and Direxion Daily

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

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

Diversification Opportunities for GM and Direxion Daily

0.08

Correlation Coefficient

GM  Direxion Daily

Significant diversification

The 3 months correlation between GM and Direxion is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Direxion Daily Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Aerospace and GM 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 General Motors 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 Aerospace has no effect on the direction of GM i.e., GM and Direxion Daily go up and down completely randomly.

Pair Corralation between GM and Direxion Daily

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.66 times more return on investment than Direxion Daily. However, General Motors is 1.52 times less risky than Direxion Daily. It trades about 0.08 of its potential returns per unit of risk. Direxion Daily Aerospace is currently generating about 0.04 per unit of risk. If you would invest  3,576  in General Motors on September 20, 2024 and sell it today you would earn a total of  1,539  from holding General Motors or generate 43.04% return on investment over 90 days.

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

General Motors  vs.  Direxion Daily Aerospace

General Motors

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Direxion Daily Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with GM and Direxion Daily

The main advantage of trading using opposite GM and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Direxion Daily Aerospace 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 Global Correlations module to find global opportunities by holding instruments from different markets.