Correlation Between Direxion Daily and Volatility Shares

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

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

Diversification Opportunities for Direxion Daily and Volatility Shares

0.75

Correlation Coefficient

Direxion Daily  Volatility Shares

Poor diversification

The 3 months correlation between Direxion and Volatility is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and Volatility Shares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volatility Shares Trust 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 NVDA are associated (or correlated) with Volatility Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volatility Shares Trust has no effect on the direction of Direxion Daily i.e., Direxion Daily and Volatility Shares go up and down completely randomly.

Pair Corralation between Direxion Daily and Volatility Shares

Given the investment horizon of 90 days Direxion Daily NVDA is expected to under-perform the Volatility Shares. In addition to that, Direxion Daily is 1.37 times more volatile than Volatility Shares Trust. It trades about -0.07 of its total potential returns per unit of risk. Volatility Shares Trust is currently generating about -0.07 per unit of volatility. If you would invest  5,205  in Volatility Shares Trust on December 30, 2024 and sell it today you would lose (1,551) from holding Volatility Shares Trust or give up 29.8% of portfolio value over 90 days.

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

Direxion Daily NVDA  vs.  Volatility Shares Trust

Direxion Daily NVDA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily NVDA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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.

Volatility Shares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Volatility Shares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with Direxion Daily and Volatility Shares

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

The idea behind Direxion Daily NVDA and Volatility Shares Trust 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.