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 GOOGL, 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

0.28

Correlation Coefficient

GM  Direxion Daily

Modest diversification

The 3 months correlation between GM and Direxion is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Direxion Daily GOOGL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily GOOGL 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 GOOGL 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 under-perform the Direxion Daily. In addition to that, GM is 1.02 times more volatile than Direxion Daily GOOGL. It trades about -0.07 of its total potential returns per unit of risk. Direxion Daily GOOGL is currently generating about 0.0 per unit of volatility. If you would invest  1,355  in Direxion Daily GOOGL on December 1, 2024 and sell it today you would lose (10.00) from holding Direxion Daily GOOGL or give up 0.74% of portfolio value over 90 days.

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

General Motors  vs.  Direxion Daily GOOGL

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Direxion Daily GOOGL

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily GOOGL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Direxion Daily is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private 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 GOOGL 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.