Correlation Between Direxion Daily and Invesco KBW

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

Diversification Opportunities for Direxion Daily and Invesco KBW

0.45

Correlation Coefficient

Direxion Daily  Invesco KBW

Very weak diversification

The 3 months correlation between Direxion and Invesco is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and Invesco KBW Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Premium 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 Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW Premium has no effect on the direction of Direxion Daily i.e., Direxion Daily and Invesco KBW go up and down completely randomly.

Pair Corralation between Direxion Daily and Invesco KBW

Given the investment horizon of 90 days Direxion Daily NVDA is expected to generate 4.52 times more return on investment than Invesco KBW. However, Direxion Daily is 4.52 times more volatile than Invesco KBW Premium. It trades about -0.03 of its potential returns per unit of risk. Invesco KBW Premium is currently generating about -0.2 per unit of risk. If you would invest  11,272  in Direxion Daily NVDA on October 20, 2024 and sell it today you would lose (1,589) from holding Direxion Daily NVDA or give up 14.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Direxion Daily NVDA  vs.  Invesco KBW Premium

Direxion Daily NVDA

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Etf's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Invesco KBW Premium

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Direxion Daily and Invesco KBW

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

The idea behind Direxion Daily NVDA and Invesco KBW Premium 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.