Correlation Between Direxion Daily and IShares SP

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

Diversification Opportunities for Direxion Daily and IShares SP

0.76

Correlation Coefficient

Direxion Daily  IShares SP

Poor diversification

The 3 months correlation between Direxion and IShares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and iShares SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Mid 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Mid has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares SP go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares SP

Given the investment horizon of 90 days Direxion Daily NVDA is expected to generate 5.14 times more return on investment than IShares SP. However, Direxion Daily is 5.14 times more volatile than iShares SP Mid Cap. It trades about 0.16 of its potential returns per unit of risk. iShares SP Mid Cap is currently generating about 0.19 per unit of risk. If you would invest  7,573  in Direxion Daily NVDA on September 1, 2024 and sell it today you would earn a total of  4,040  from holding Direxion Daily NVDA or generate 53.35% return on investment over 90 days.

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

Direxion Daily NVDA  vs.  iShares SP Mid Cap

Direxion Daily NVDA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily NVDA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares SP Mid

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting forward-looking indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Direxion Daily and IShares SP

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

The idea behind Direxion Daily NVDA and iShares SP Mid Cap 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.