Correlation Between Direxion Daily and IShares Transportation

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

Diversification Opportunities for Direxion Daily and IShares Transportation

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Direxion and IShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and iShares Transportation Average in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Transportation 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 Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Transportation has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares Transportation go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares Transportation

Given the investment horizon of 90 days Direxion Daily NVDA is expected to generate 5.2 times more return on investment than IShares Transportation. However, Direxion Daily is 5.2 times more volatile than iShares Transportation Average. It trades about 0.03 of its potential returns per unit of risk. iShares Transportation Average is currently generating about 0.04 per unit of risk. If you would invest  9,756  in Direxion Daily NVDA on September 29, 2024 and sell it today you would earn a total of  23.00  from holding Direxion Daily NVDA or generate 0.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Direxion Daily NVDA  vs.  iShares Transportation Average

 Performance 
       Timeline  
Direxion Daily NVDA 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily NVDA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.
iShares Transportation 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares Transportation Average has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Transportation is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Direxion Daily and IShares Transportation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Direxion Daily and IShares Transportation

The main advantage of trading using opposite Direxion Daily and IShares Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, IShares Transportation 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 Transportation will offset losses from the drop in IShares Transportation's long position.
The idea behind Direxion Daily NVDA and iShares Transportation Average 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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