Correlation Between Cambria Tail and Direxion Daily

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

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

Diversification Opportunities for Cambria Tail and Direxion Daily

0.88

Correlation Coefficient

Cambria Tail  Direxion Daily

Very poor diversification

The 3 months correlation between Cambria and Direxion is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Tail Risk and Direxion Daily GOOGL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily GOOGL and Cambria Tail 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 Cambria Tail Risk 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 GOOGL has no effect on the direction of Cambria Tail i.e., Cambria Tail and Direxion Daily go up and down completely randomly.

Pair Corralation between Cambria Tail and Direxion Daily

Given the investment horizon of 90 days Cambria Tail is expected to generate 3.69 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, Cambria Tail Risk is 2.05 times less risky than Direxion Daily. It trades about 0.1 of its potential returns per unit of risk. Direxion Daily GOOGL is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,197  in Direxion Daily GOOGL on December 29, 2024 and sell it today you would earn a total of  267.00  from holding Direxion Daily GOOGL or generate 22.31% return on investment over 90 days.

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

Cambria Tail Risk  vs.  Direxion Daily GOOGL

Cambria Tail Risk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Tail Risk are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, Cambria Tail is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Direxion Daily GOOGL

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily GOOGL are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cambria Tail and Direxion Daily

The main advantage of trading using opposite Cambria Tail and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cambria Tail 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 Cambria Tail Risk and Direxion Daily GOOGL 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.