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 SP, 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

0.52

Correlation Coefficient

Cambria Tail  Direxion Daily

Very weak diversification

The 3 months correlation between Cambria and Direxion is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Tail Risk and Direxion Daily SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP 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 SP 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 Risk is expected to generate 0.19 times more return on investment than Direxion Daily. However, Cambria Tail Risk is 5.36 times less risky than Direxion Daily. It trades about -0.05 of its potential returns per unit of risk. Direxion Daily SP is currently generating about -0.03 per unit of risk. If you would invest  1,439  in Cambria Tail Risk on December 4, 2024 and sell it today you would lose (270.00) from holding Cambria Tail Risk or give up 18.76% of portfolio value over 90 days.

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

Cambria Tail Risk  vs.  Direxion Daily SP

Cambria Tail Risk

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Tail Risk are ranked lower than 6 (%) 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 SP

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental drivers, 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 SP 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.