Correlation Between Direxion Daily and Houston Natural

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

Diversification Opportunities for Direxion Daily and Houston Natural

-0.74

Correlation Coefficient

Direxion Daily  Houston Natural

Pay attention - limited upside

The 3 months correlation between Direxion and Houston is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and Houston Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houston Natural Resources 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 Houston Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houston Natural Resources has no effect on the direction of Direxion Daily i.e., Direxion Daily and Houston Natural go up and down completely randomly.

Pair Corralation between Direxion Daily and Houston Natural

Given the investment horizon of 90 days Direxion Daily Mid is expected to under-perform the Houston Natural. But the etf apears to be less risky and, when comparing its historical volatility, Direxion Daily Mid is 2.85 times less risky than Houston Natural. The etf trades about -0.08 of its potential returns per unit of risk. The Houston Natural Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1.63  in Houston Natural Resources on December 27, 2024 and sell it today you would lose (0.05) from holding Houston Natural Resources or give up 3.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	35.0%
Values	Daily Returns

Direxion Daily Mid  vs.  Houston Natural Resources

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.

Houston Natural Resources

Risk-Adjusted Performance

Weak

Over the last 90 days Houston Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak basic indicators, Houston Natural exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and Houston Natural

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

The idea behind Direxion Daily Mid and Houston Natural Resources 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.