Correlation Between Invesco KBW and Direxion Daily

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

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

Diversification Opportunities for Invesco KBW and Direxion Daily

0.8

Correlation Coefficient

Invesco KBW  Direxion Daily

Very poor diversification

The 3 months correlation between Invesco and Direxion is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Invesco KBW High and Direxion Daily Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Regional and Invesco KBW 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 Invesco KBW High 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 Regional has no effect on the direction of Invesco KBW i.e., Invesco KBW and Direxion Daily go up and down completely randomly.

Pair Corralation between Invesco KBW and Direxion Daily

Given the investment horizon of 90 days Invesco KBW is expected to generate 8.23 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, Invesco KBW High is 5.31 times less risky than Direxion Daily. It trades about 0.03 of its potential returns per unit of risk. Direxion Daily Regional is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,557  in Direxion Daily Regional on September 17, 2024 and sell it today you would earn a total of  4,037  from holding Direxion Daily Regional or generate 42.24% return on investment over 90 days.

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

Invesco KBW High  vs.  Direxion Daily Regional

Invesco KBW High

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco KBW High are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco KBW is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Direxion Daily Regional

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Regional are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco KBW and Direxion Daily

The main advantage of trading using opposite Invesco KBW and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco KBW 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 Invesco KBW High and Direxion Daily Regional 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.