Correlation Between Direxion Daily and Innovator ETFs

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

By analyzing existing cross correlation between Direxion Daily MSCI and Innovator ETFs Trust, you can compare the effects of market volatilities on Direxion Daily and Innovator ETFs 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 Innovator ETFs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Innovator ETFs.

Diversification Opportunities for Direxion Daily and Innovator ETFs

0.81

Correlation Coefficient

Direxion Daily  Innovator ETFs

Very poor diversification

The 3 months correlation between Direxion and Innovator is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily MSCI and Innovator ETFs Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator ETFs Trust 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 MSCI are associated (or correlated) with Innovator ETFs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator ETFs Trust has no effect on the direction of Direxion Daily i.e., Direxion Daily and Innovator ETFs go up and down completely randomly.

Pair Corralation between Direxion Daily and Innovator ETFs

Given the investment horizon of 90 days Direxion Daily MSCI is expected to generate 19.85 times more return on investment than Innovator ETFs. However, Direxion Daily is 19.85 times more volatile than Innovator ETFs Trust. It trades about 0.1 of its potential returns per unit of risk. Innovator ETFs Trust is currently generating about 0.23 per unit of risk. If you would invest  1,005  in Direxion Daily MSCI on December 21, 2024 and sell it today you would earn a total of  203.00  from holding Direxion Daily MSCI or generate 20.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Direxion Daily MSCI  vs.  Innovator ETFs Trust

Direxion Daily MSCI

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily MSCI are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Direxion Daily showed solid returns over the last few months and may actually be approaching a breakup point.

Innovator ETFs Trust

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator ETFs Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Innovator ETFs is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Direxion Daily and Innovator ETFs

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

The idea behind Direxion Daily MSCI and Innovator ETFs Trust 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.