Correlation Between Direxion Daily and SPDR Bloomberg

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

Diversification Opportunities for Direxion Daily and SPDR Bloomberg

-0.74

Correlation Coefficient

Direxion Daily  SPDR Bloomberg

Pay attention - limited upside

The 3 months correlation between Direxion and SPDR is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP500 and SPDR Bloomberg Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Bloomberg Short 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 SPDR Bloomberg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Bloomberg Short has no effect on the direction of Direxion Daily i.e., Direxion Daily and SPDR Bloomberg go up and down completely randomly.

Pair Corralation between Direxion Daily and SPDR Bloomberg

Given the investment horizon of 90 days Direxion Daily SP500 is expected to generate 4.25 times more return on investment than SPDR Bloomberg. However, Direxion Daily is 4.25 times more volatile than SPDR Bloomberg Short. It trades about 0.18 of its potential returns per unit of risk. SPDR Bloomberg Short is currently generating about -0.08 per unit of risk. If you would invest  14,642  in Direxion Daily SP500 on September 2, 2024 and sell it today you would earn a total of  3,827  from holding Direxion Daily SP500 or generate 26.14% return on investment over 90 days.

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

Direxion Daily SP500  vs.  SPDR Bloomberg Short

Direxion Daily SP500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP500 are ranked lower than 14 (%) 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.

SPDR Bloomberg Short

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Bloomberg Short has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR Bloomberg is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and SPDR Bloomberg

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

The idea behind Direxion Daily SP500 and SPDR Bloomberg Short 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.