Correlation Between Direxion Daily and Invesco China

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

By analyzing existing cross correlation between Direxion Daily 20 and Invesco China Technology, you can compare the effects of market volatilities on Direxion Daily and Invesco China 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 Invesco China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Invesco China.

Diversification Opportunities for Direxion Daily and Invesco China

-0.83

Correlation Coefficient

Direxion Daily  Invesco China

Pay attention - limited upside

The 3 months correlation between Direxion and Invesco is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily 20 and Invesco China Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco China Technology 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 20 are associated (or correlated) with Invesco China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco China Technology has no effect on the direction of Direxion Daily i.e., Direxion Daily and Invesco China go up and down completely randomly.

Pair Corralation between Direxion Daily and Invesco China

Considering the 90-day investment horizon Direxion Daily 20 is expected to under-perform the Invesco China. In addition to that, Direxion Daily is 1.16 times more volatile than Invesco China Technology. It trades about -0.06 of its total potential returns per unit of risk. Invesco China Technology is currently generating about 0.16 per unit of volatility. If you would invest  4,091  in Invesco China Technology on December 20, 2024 and sell it today you would earn a total of  801.00  from holding Invesco China Technology or generate 19.58% return on investment over 90 days.

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

Direxion Daily 20  vs.  Invesco China Technology

Direxion Daily 20

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's primary indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Invesco China Technology

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco China Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and Invesco China

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

The idea behind Direxion Daily 20 and Invesco China Technology 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.