Correlation Between Direxion Daily and Invesco Dynamic

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

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

Diversification Opportunities for Direxion Daily and Invesco Dynamic

0.98

Correlation Coefficient

Direxion Daily  Invesco Dynamic

Almost no diversification

The 3 months correlation between Direxion and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Travel and Invesco Dynamic Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Leisure 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 Travel are associated (or correlated) with Invesco Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dynamic Leisure has no effect on the direction of Direxion Daily i.e., Direxion Daily and Invesco Dynamic go up and down completely randomly.

Pair Corralation between Direxion Daily and Invesco Dynamic

Given the investment horizon of 90 days Direxion Daily Travel is expected to generate 1.64 times more return on investment than Invesco Dynamic. However, Direxion Daily is 1.64 times more volatile than Invesco Dynamic Leisure. It trades about 0.06 of its potential returns per unit of risk. Invesco Dynamic Leisure is currently generating about 0.02 per unit of risk. If you would invest  1,912  in Direxion Daily Travel on September 21, 2024 and sell it today you would earn a total of  40.63  from holding Direxion Daily Travel or generate 2.12% return on investment over 90 days.

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

Direxion Daily Travel  vs.  Invesco Dynamic Leisure

Direxion Daily Travel

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Travel are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Direxion Daily displayed solid returns over the last few months and may actually be approaching a breakup point.

Invesco Dynamic Leisure

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Dynamic Leisure are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Invesco Dynamic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and Invesco Dynamic

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

The idea behind Direxion Daily Travel and Invesco Dynamic Leisure 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.