Correlation Between Invesco QQQ and Direxion Shares

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

By analyzing existing cross correlation between Invesco QQQ Trust and Direxion Shares ETF, you can compare the effects of market volatilities on Invesco QQQ and Direxion Shares 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 Invesco QQQ with a short position of Direxion Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco QQQ and Direxion Shares.

Diversification Opportunities for Invesco QQQ and Direxion Shares

-0.79

Correlation Coefficient

Invesco QQQ  Direxion Shares

Pay attention - limited upside

The 3 months correlation between Invesco and Direxion is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Invesco QQQ Trust and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF and Invesco QQQ 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 Invesco QQQ Trust are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of Invesco QQQ i.e., Invesco QQQ and Direxion Shares go up and down completely randomly.

Pair Corralation between Invesco QQQ and Direxion Shares

Assuming the 90 days trading horizon Invesco QQQ is expected to generate 11.23 times less return on investment than Direxion Shares. But when comparing it to its historical volatility, Invesco QQQ Trust is 2.52 times less risky than Direxion Shares. It trades about 0.04 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  11,872  in Direxion Shares ETF on October 9, 2024 and sell it today you would earn a total of  1,018  from holding Direxion Shares ETF or generate 8.57% return on investment over 90 days.

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

Invesco QQQ Trust  vs.  Direxion Shares ETF

Invesco QQQ Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco QQQ Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Invesco QQQ may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Direxion Shares ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Shares ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Invesco QQQ and Direxion Shares

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

The idea behind Invesco QQQ Trust and Direxion Shares ETF 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.