Correlation Between Direxion Daily and ETRACS Quarterly

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

By analyzing existing cross correlation between Direxion Daily SP500 and ETRACS Quarterly Pay, you can compare the effects of market volatilities on Direxion Daily and ETRACS Quarterly 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 ETRACS Quarterly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and ETRACS Quarterly.

Diversification Opportunities for Direxion Daily and ETRACS Quarterly

0.8

Correlation Coefficient

Direxion Daily  ETRACS Quarterly

Very poor diversification

The 3 months correlation between Direxion and ETRACS is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP500 and ETRACS Quarterly Pay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS Quarterly Pay 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 SP500 are associated (or correlated) with ETRACS Quarterly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS Quarterly Pay has no effect on the direction of Direxion Daily i.e., Direxion Daily and ETRACS Quarterly go up and down completely randomly.

Pair Corralation between Direxion Daily and ETRACS Quarterly

Given the investment horizon of 90 days Direxion Daily SP500 is expected to generate 1.9 times more return on investment than ETRACS Quarterly. However, Direxion Daily is 1.9 times more volatile than ETRACS Quarterly Pay. It trades about 0.2 of its potential returns per unit of risk. ETRACS Quarterly Pay is currently generating about 0.09 per unit of risk. If you would invest  14,423  in Direxion Daily SP500 on September 5, 2024 and sell it today you would earn a total of  4,163  from holding Direxion Daily SP500 or generate 28.86% return on investment over 90 days.

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

Direxion Daily SP500  vs.  ETRACS Quarterly Pay

Direxion Daily SP500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

ETRACS Quarterly Pay

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS Quarterly Pay are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, ETRACS Quarterly may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and ETRACS Quarterly

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

The idea behind Direxion Daily SP500 and ETRACS Quarterly Pay 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.

Check out your portfolio center.

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.