Correlation Between Direxion Daily and WisdomTree Alternative

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

Diversification Opportunities for Direxion Daily and WisdomTree Alternative

-0.44

Correlation Coefficient

Direxion Daily  WisdomTree Alternative

Very good diversification

The 3 months correlation between Direxion and WisdomTree is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily 20 and WisdomTree Alternative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Alternative 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 WisdomTree Alternative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Alternative has no effect on the direction of Direxion Daily i.e., Direxion Daily and WisdomTree Alternative go up and down completely randomly.

Pair Corralation between Direxion Daily and WisdomTree Alternative

Considering the 90-day investment horizon Direxion Daily 20 is expected to generate 2.4 times more return on investment than WisdomTree Alternative. However, Direxion Daily is 2.4 times more volatile than WisdomTree Alternative Income. It trades about 0.54 of its potential returns per unit of risk. WisdomTree Alternative Income is currently generating about -0.08 per unit of risk. If you would invest  3,195  in Direxion Daily 20 on October 5, 2024 and sell it today you would earn a total of  754.00  from holding Direxion Daily 20 or generate 23.6% return on investment over 90 days.

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

Direxion Daily 20  vs.  WisdomTree Alternative Income

Direxion Daily 20

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily 20 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, Direxion Daily showed solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Alternative

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Alternative Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, WisdomTree Alternative is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and WisdomTree Alternative

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

The idea behind Direxion Daily 20 and WisdomTree Alternative Income 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.