Correlation Between Direxion Daily and IPath Series

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and IPath Series 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 IPath Series 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 iPath Series B, you can compare the effects of market volatilities on Direxion Daily and IPath Series 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 IPath Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and IPath Series.

Diversification Opportunities for Direxion Daily and IPath Series

0.72

Correlation Coefficient

Direxion Daily  IPath Series

Poor diversification

The 3 months correlation between Direxion and IPath is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and iPath Series B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iPath Series B 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 IPath Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iPath Series B has no effect on the direction of Direxion Daily i.e., Direxion Daily and IPath Series go up and down completely randomly.

Pair Corralation between Direxion Daily and IPath Series

Given the investment horizon of 90 days Direxion Daily SP is expected to generate 1.11 times more return on investment than IPath Series. However, Direxion Daily is 1.11 times more volatile than iPath Series B. It trades about 0.08 of its potential returns per unit of risk. iPath Series B is currently generating about 0.04 per unit of risk. If you would invest  689.00  in Direxion Daily SP on December 27, 2024 and sell it today you would earn a total of  121.00  from holding Direxion Daily SP or generate 17.56% return on investment over 90 days.

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

Direxion Daily SP  vs.  iPath Series B

Direxion Daily SP

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Direxion Daily exhibited solid returns over the last few months and may actually be approaching a breakup point.

iPath Series B

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iPath Series B are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IPath Series may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Direxion Daily and IPath Series

The main advantage of trading using opposite Direxion Daily and IPath Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, IPath Series 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 IPath Series will offset losses from the drop in IPath Series' long position.

The idea behind Direxion Daily SP and iPath Series B 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.