Correlation Between Direxion Daily and Small Cap

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

Diversification Opportunities for Direxion Daily and Small Cap

-0.38

Correlation Coefficient

Direxion Daily  Small Cap

Very good diversification

The 3 months correlation between Direxion and Small is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and Small Cap Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Premium 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Premium has no effect on the direction of Direxion Daily i.e., Direxion Daily and Small Cap go up and down completely randomly.

Pair Corralation between Direxion Daily and Small Cap

Given the investment horizon of 90 days Direxion Daily Mid is expected to under-perform the Small Cap. In addition to that, Direxion Daily is 9.02 times more volatile than Small Cap Premium. It trades about -0.08 of its total potential returns per unit of risk. Small Cap Premium is currently generating about 0.08 per unit of volatility. If you would invest  2,421  in Small Cap Premium on December 28, 2024 and sell it today you would earn a total of  43.00  from holding Small Cap Premium or generate 1.78% return on investment over 90 days.

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

Direxion Daily Mid  vs.  Small Cap Premium

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.

Small Cap Premium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Direxion Daily and Small Cap

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

The idea behind Direxion Daily Mid and Small Cap Premium 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..