Correlation Between Direxion Daily and OShares Europe

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

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

Diversification Opportunities for Direxion Daily and OShares Europe

-0.21

Correlation Coefficient

Direxion Daily  OShares Europe

Very good diversification

The 3 months correlation between Direxion and OShares is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Technology and OShares Europe Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OShares Europe Quality 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 Technology are associated (or correlated) with OShares Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OShares Europe Quality has no effect on the direction of Direxion Daily i.e., Direxion Daily and OShares Europe go up and down completely randomly.

Pair Corralation between Direxion Daily and OShares Europe

Given the investment horizon of 90 days Direxion Daily Technology is expected to generate 5.23 times more return on investment than OShares Europe. However, Direxion Daily is 5.23 times more volatile than OShares Europe Quality. It trades about 0.06 of its potential returns per unit of risk. OShares Europe Quality is currently generating about -0.04 per unit of risk. If you would invest  7,566  in Direxion Daily Technology on October 9, 2024 and sell it today you would earn a total of  2,212  from holding Direxion Daily Technology or generate 29.24% return on investment over 90 days.

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

Direxion Daily Technology  vs.  OShares Europe Quality

Direxion Daily Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in February 2025.

OShares Europe Quality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Europe Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with Direxion Daily and OShares Europe

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

The idea behind Direxion Daily Technology and OShares Europe Quality 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.