Correlation Between IShares Core and Direxion Daily

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

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

Diversification Opportunities for IShares Core and Direxion Daily

0.02

Correlation Coefficient

IShares Core  Direxion Daily

Significant diversification

The 3 months correlation between IShares and Direxion is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Direxion Daily Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Energy and IShares Core 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 iShares Core SP 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 Energy has no effect on the direction of IShares Core i.e., IShares Core and Direxion Daily go up and down completely randomly.

Pair Corralation between IShares Core and Direxion Daily

Considering the 90-day investment horizon iShares Core SP is expected to generate 0.4 times more return on investment than Direxion Daily. However, iShares Core SP is 2.51 times less risky than Direxion Daily. It trades about -0.08 of its potential returns per unit of risk. Direxion Daily Energy is currently generating about -0.11 per unit of risk. If you would invest  58,915  in iShares Core SP on December 29, 2024 and sell it today you would lose (3,103) from holding iShares Core SP or give up 5.27% of portfolio value over 90 days.

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

iShares Core SP  vs.  Direxion Daily Energy

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Direxion Daily Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with IShares Core and Direxion Daily

The main advantage of trading using opposite IShares Core and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 iShares Core SP and Direxion Daily Energy 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.