Correlation Between Themes Transatlantic and Direxion Daily

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

By analyzing existing cross correlation between Themes Transatlantic Defense and Direxion Daily Industrials, you can compare the effects of market volatilities on Themes Transatlantic and Direxion Daily 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 Themes Transatlantic with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Themes Transatlantic and Direxion Daily.

Diversification Opportunities for Themes Transatlantic and Direxion Daily

-0.35

Correlation Coefficient

Themes Transatlantic  Direxion Daily

Very good diversification

The 3 months correlation between Themes and Direxion is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Themes Transatlantic Defense and Direxion Daily Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Indus and Themes Transatlantic 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 Themes Transatlantic Defense are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily Indus has no effect on the direction of Themes Transatlantic i.e., Themes Transatlantic and Direxion Daily go up and down completely randomly.

Pair Corralation between Themes Transatlantic and Direxion Daily

Given the investment horizon of 90 days Themes Transatlantic Defense is expected to generate 0.42 times more return on investment than Direxion Daily. However, Themes Transatlantic Defense is 2.36 times less risky than Direxion Daily. It trades about 0.19 of its potential returns per unit of risk. Direxion Daily Industrials is currently generating about 0.01 per unit of risk. If you would invest  2,552  in Themes Transatlantic Defense on December 28, 2024 and sell it today you would earn a total of  378.00  from holding Themes Transatlantic Defense or generate 14.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Themes Transatlantic Defense  vs.  Direxion Daily Industrials

Themes Transatlantic

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Transatlantic Defense are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Themes Transatlantic displayed solid returns over the last few months and may actually be approaching a breakup point.

Direxion Daily Indus

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Direxion Daily is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Themes Transatlantic and Direxion Daily

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

The idea behind Themes Transatlantic Defense and Direxion Daily Industrials 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.