Correlation Between Direxion Daily and Vanguard Financials

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

Diversification Opportunities for Direxion Daily and Vanguard Financials

-0.01

Correlation Coefficient

Direxion Daily  Vanguard Financials

Good diversification

The 3 months correlation between Direxion and Vanguard is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Technology and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index 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 Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Direxion Daily i.e., Direxion Daily and Vanguard Financials go up and down completely randomly.

Pair Corralation between Direxion Daily and Vanguard Financials

Given the investment horizon of 90 days Direxion Daily Technology is expected to under-perform the Vanguard Financials. In addition to that, Direxion Daily is 4.36 times more volatile than Vanguard Financials Index. It trades about -0.03 of its total potential returns per unit of risk. Vanguard Financials Index is currently generating about -0.03 per unit of volatility. If you would invest  12,551  in Vanguard Financials Index on November 28, 2024 and sell it today you would lose (237.00) from holding Vanguard Financials Index or give up 1.89% of portfolio value over 90 days.

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

Direxion Daily Technology  vs.  Vanguard Financials Index

Direxion Daily Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Etf's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Vanguard Financials Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Financials Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Vanguard Financials is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Direxion Daily and Vanguard Financials

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

The idea behind Direxion Daily Technology and Vanguard Financials Index 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.