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

0.99

Correlation Coefficient

SPDR SP  Direxion Daily

No risk reduction

The 3 months correlation between SPDR and Direxion is 0.99. 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 is expected to generate 2.49 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, SPDR SP 400 is 2.94 times less risky than Direxion Daily. It trades about 0.15 of its potential returns per unit of risk. Direxion Daily Mid is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,395  in Direxion Daily Mid on August 30, 2024 and sell it today you would earn a total of  1,315  from holding Direxion Daily Mid or generate 24.37% return on investment 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

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Direxion Daily Mid

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Mid are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.