Correlation Between Direxion Daily and IOC

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

Diversification Opportunities for Direxion Daily and IOC

0.89

Correlation Coefficient

Direxion Daily  IOC

Very poor diversification

The 3 months correlation between Direxion and IOC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and IOC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IOC 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 IOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IOC has no effect on the direction of Direxion Daily i.e., Direxion Daily and IOC go up and down completely randomly.

Pair Corralation between Direxion Daily and IOC

Given the investment horizon of 90 days Direxion Daily Mid is expected to under-perform the IOC. In addition to that, Direxion Daily is 1.27 times more volatile than IOC. It trades about -0.09 of its total potential returns per unit of risk. IOC is currently generating about -0.04 per unit of volatility. If you would invest  1.22  in IOC on December 26, 2024 and sell it today you would lose (0.09) from holding IOC or give up 7.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Direxion Daily Mid  vs.  IOC

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.

IOC

Risk-Adjusted Performance

Very Weak

Over the last 90 days IOC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, IOC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Direxion Daily and IOC

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

The idea behind Direxion Daily Mid and IOC 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.