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 Cnsmr, 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

-0.16

Correlation Coefficient

Direxion  Direxion Daily

Good diversification

The 3 months correlation between Direxion and Direxion is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Direxion and Direxion Daily Cnsmr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Cnsmr 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 Cnsmr 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

Given the investment horizon of 90 days Direxion is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, Direxion is 1.17 times less risky than Direxion Daily. The etf trades about -0.06 of its potential returns per unit of risk. The Direxion Daily Cnsmr is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,483  in Direxion Daily Cnsmr on September 18, 2024 and sell it today you would earn a total of  4,886  from holding Direxion Daily Cnsmr or generate 329.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.19%
Values	Daily Returns

Direxion  vs.  Direxion Daily Cnsmr

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 Cnsmr

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Cnsmr are ranked lower than 23 (%) 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 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 Cnsmr 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 Global Correlations module to find global opportunities by holding instruments from different markets.