Correlation Between Direxion Daily and IShares MSCI

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

Diversification Opportunities for Direxion Daily and IShares MSCI

0.8

Correlation Coefficient

Direxion Daily  IShares MSCI

Very poor diversification

The 3 months correlation between Direxion and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily MSCI and iShares MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI China 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI China has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares MSCI go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares MSCI

Given the investment horizon of 90 days Direxion Daily MSCI is expected to under-perform the IShares MSCI. In addition to that, Direxion Daily is 1.75 times more volatile than iShares MSCI China. It trades about -0.16 of its total potential returns per unit of risk. iShares MSCI China is currently generating about -0.09 per unit of volatility. If you would invest  5,222  in iShares MSCI China on October 8, 2024 and sell it today you would lose (660.00) from holding iShares MSCI China or give up 12.64% of portfolio value over 90 days.

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

Direxion Daily MSCI  vs.  iShares MSCI China

Direxion Daily MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily MSCI 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 basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

iShares MSCI China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI China has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with Direxion Daily and IShares MSCI

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

The idea behind Direxion Daily MSCI and iShares MSCI China 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.