Correlation Between Direxion and Direxion Daily

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

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

Diversification Opportunities for Direxion and Direxion Daily

0.1

Correlation Coefficient

Direxion  Direxion Daily

Average diversification

The 3 months correlation between Direxion and Direxion is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Direxion and Direxion Daily Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Indus and Direxion 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 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 Indus has no effect on the direction of Direxion i.e., Direxion and Direxion Daily go up and down completely randomly.

Pair Corralation between Direxion and Direxion Daily

If you would invest  5,675  in Direxion Daily Industrials on September 18, 2024 and sell it today you would earn a total of  543.00  from holding Direxion Daily Industrials or generate 9.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Direxion  vs.  Direxion Daily Industrials

Direxion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Direxion is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Direxion Daily Indus

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Industrials are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion and Direxion Daily

The main advantage of trading using opposite Direxion and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion 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 Direxion and Direxion Daily Industrials 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.