Correlation Between Pfizer and Direxion Daily

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

By analyzing existing cross correlation between Pfizer Inc and Direxion Daily Healthcare, you can compare the effects of market volatilities on Pfizer and Direxion Daily 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 Pfizer with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pfizer and Direxion Daily.

Diversification Opportunities for Pfizer and Direxion Daily

0.2

Correlation Coefficient

Pfizer  Direxion Daily

Modest diversification

The 3 months correlation between Pfizer and Direxion is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Direxion Daily Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Healthcare and Pfizer 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 Pfizer Inc are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily Healthcare has no effect on the direction of Pfizer i.e., Pfizer and Direxion Daily go up and down completely randomly.

Pair Corralation between Pfizer and Direxion Daily

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the Direxion Daily. But the stock apears to be less risky and, when comparing its historical volatility, Pfizer Inc is 1.94 times less risky than Direxion Daily. The stock trades about -0.05 of its potential returns per unit of risk. The Direxion Daily Healthcare is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,097  in Direxion Daily Healthcare on December 28, 2024 and sell it today you would earn a total of  1,361  from holding Direxion Daily Healthcare or generate 14.96% return on investment over 90 days.

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

Pfizer Inc  vs.  Direxion Daily Healthcare

Pfizer Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pfizer Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Pfizer is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Direxion Daily Healthcare

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Healthcare are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Direxion Daily exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pfizer and Direxion Daily

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

The idea behind Pfizer Inc and Direxion Daily Healthcare 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 Correlations module to find global opportunities by holding instruments from different markets.