Correlation Between Direxion Daily and Caterpillar

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

Diversification Opportunities for Direxion Daily and Caterpillar

0.81

Correlation Coefficient

Direxion Daily  Caterpillar

Very poor diversification

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

Pair Corralation between Direxion Daily and Caterpillar

Given the investment horizon of 90 days Direxion Daily Mid is expected to under-perform the Caterpillar. In addition to that, Direxion Daily is 1.73 times more volatile than Caterpillar. It trades about -0.15 of its total potential returns per unit of risk. Caterpillar is currently generating about -0.15 per unit of volatility. If you would invest  38,355  in Caterpillar on December 2, 2024 and sell it today you would lose (5,405) from holding Caterpillar or give up 14.09% of portfolio value over 90 days.

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

Direxion Daily Mid  vs.  Caterpillar

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.

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock'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 the firm shareholders.

Pair Trading with Direxion Daily and Caterpillar

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

The idea behind Direxion Daily Mid and Caterpillar 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.