Correlation Between SPDR SP and Direxion Daily

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

By analyzing existing cross correlation between SPDR SP 400 and Direxion Daily Mid, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Direxion Daily.

Diversification Opportunities for SPDR SP and Direxion Daily

0.96

Correlation Coefficient

SPDR SP  Direxion Daily

Almost no diversification

The 3 months correlation between SPDR and Direxion is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Direxion Daily Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Mid and SPDR SP 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 SPDR SP 400 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 Mid has no effect on the direction of SPDR SP i.e., SPDR SP and Direxion Daily go up and down completely randomly.

Pair Corralation between SPDR SP and Direxion Daily

Given the investment horizon of 90 days SPDR SP 400 is expected to generate 0.38 times more return on investment than Direxion Daily. However, SPDR SP 400 is 2.65 times less risky than Direxion Daily. It trades about -0.09 of its potential returns per unit of risk. Direxion Daily Mid is currently generating about -0.11 per unit of risk. If you would invest  8,681  in SPDR SP 400 on December 29, 2024 and sell it today you would lose (578.00) from holding SPDR SP 400 or give up 6.66% of portfolio value over 90 days.

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

SPDR SP 400  vs.  Direxion Daily Mid

SPDR SP 400

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 400 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Direxion Daily Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily Mid has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Etf's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with SPDR SP and Direxion Daily

The main advantage of trading using opposite SPDR SP and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP 400 and Direxion Daily Mid 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.