Correlation Between Direxion Daily and KraneShares Emerging

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

Diversification Opportunities for Direxion Daily and KraneShares Emerging

-0.42

Correlation Coefficient

Direxion Daily  KraneShares Emerging

Very good diversification

The 3 months correlation between Direxion and KraneShares is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP500 and KraneShares Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares Emerging 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 KraneShares Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares Emerging has no effect on the direction of Direxion Daily i.e., Direxion Daily and KraneShares Emerging go up and down completely randomly.

Pair Corralation between Direxion Daily and KraneShares Emerging

Given the investment horizon of 90 days Direxion Daily SP500 is expected to under-perform the KraneShares Emerging. In addition to that, Direxion Daily is 1.64 times more volatile than KraneShares Emerging Markets. It trades about -0.12 of its total potential returns per unit of risk. KraneShares Emerging Markets is currently generating about 0.13 per unit of volatility. If you would invest  1,712  in KraneShares Emerging Markets on December 24, 2024 and sell it today you would earn a total of  226.00  from holding KraneShares Emerging Markets or generate 13.2% return on investment over 90 days.

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

Direxion Daily SP500  vs.  KraneShares Emerging Markets

Direxion Daily SP500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Etf's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

KraneShares Emerging

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares Emerging Markets are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, KraneShares Emerging reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and KraneShares Emerging

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

The idea behind Direxion Daily SP500 and KraneShares Emerging Markets 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.