Correlation Between Direxion Daily and T Rex

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

By analyzing existing cross correlation between Direxion Daily SP and T Rex 2X Long, you can compare the effects of market volatilities on Direxion Daily and T Rex 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 Direxion Daily with a short position of T Rex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and T Rex.

Diversification Opportunities for Direxion Daily and T Rex

0.44

Correlation Coefficient

Direxion Daily  T Rex

Very weak diversification

The 3 months correlation between Direxion and NVDX is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and T Rex 2X Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rex 2X and Direxion Daily 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 Direxion Daily SP are associated (or correlated) with T Rex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rex 2X has no effect on the direction of Direxion Daily i.e., Direxion Daily and T Rex go up and down completely randomly.

Pair Corralation between Direxion Daily and T Rex

Given the investment horizon of 90 days Direxion Daily is expected to generate 2.63 times less return on investment than T Rex. But when comparing it to its historical volatility, Direxion Daily SP is 1.5 times less risky than T Rex. It trades about 0.05 of its potential returns per unit of risk. T Rex 2X Long is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,320  in T Rex 2X Long on September 16, 2024 and sell it today you would earn a total of  303.00  from holding T Rex 2X Long or generate 22.95% return on investment over 90 days.

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

Direxion Daily SP  vs.  T Rex 2X Long

Direxion Daily SP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in January 2025.

T Rex 2X

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in T Rex 2X Long are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, T Rex showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and T Rex

The main advantage of trading using opposite Direxion Daily and T Rex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, T Rex 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 T Rex will offset losses from the drop in T Rex's long position.

The idea behind Direxion Daily SP and T Rex 2X Long 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.