Correlation Between Direxion Daily and American Beacon

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

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

Diversification Opportunities for Direxion Daily and American Beacon

-0.29

Correlation Coefficient

Direxion Daily  American Beacon

Very good diversification

The 3 months correlation between Direxion and American is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Homebuilders and American Beacon Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Select 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 Homebuilders are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Select has no effect on the direction of Direxion Daily i.e., Direxion Daily and American Beacon go up and down completely randomly.

Pair Corralation between Direxion Daily and American Beacon

Given the investment horizon of 90 days Direxion Daily Homebuilders is expected to under-perform the American Beacon. In addition to that, Direxion Daily is 4.0 times more volatile than American Beacon Select. It trades about -0.07 of its total potential returns per unit of risk. American Beacon Select is currently generating about 0.15 per unit of volatility. If you would invest  2,870  in American Beacon Select on September 13, 2024 and sell it today you would earn a total of  309.00  from holding American Beacon Select or generate 10.77% return on investment over 90 days.

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

Direxion Daily Homebuilders  vs.  American Beacon Select

Direxion Daily Homeb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Homebuilders has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Etf's forward indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

American Beacon Select

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Select are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and American Beacon

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

The idea behind Direxion Daily Homebuilders and American Beacon Select 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.