Correlation Between Direxion Daily and ADX

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

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

Diversification Opportunities for Direxion Daily and ADX

0.62

Correlation Coefficient

Direxion Daily  ADX

Poor diversification

The 3 months correlation between Direxion and ADX is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and ADX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX 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 Mid are associated (or correlated) with ADX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX has no effect on the direction of Direxion Daily i.e., Direxion Daily and ADX go up and down completely randomly.

Pair Corralation between Direxion Daily and ADX

Given the investment horizon of 90 days Direxion Daily Mid is expected to generate 0.65 times more return on investment than ADX. However, Direxion Daily Mid is 1.54 times less risky than ADX. It trades about -0.11 of its potential returns per unit of risk. ADX is currently generating about -0.2 per unit of risk. If you would invest  5,228  in Direxion Daily Mid on December 29, 2024 and sell it today you would lose (1,124) from holding Direxion Daily Mid or give up 21.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

Direxion Daily Mid  vs.  ADX

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.

ADX

Risk-Adjusted Performance

Very Weak

Over the last 90 days ADX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for ADX shareholders.

Pair Trading with Direxion Daily and ADX

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

The idea behind Direxion Daily Mid and ADX 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.