Correlation Between Direxion Daily and KraneShares MSCI

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

Diversification Opportunities for Direxion Daily and KraneShares MSCI

-0.02

Correlation Coefficient

Direxion Daily  KraneShares MSCI

Good diversification

The 3 months correlation between Direxion and KraneShares is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily 20 and KraneShares MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares MSCI China 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 KraneShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares MSCI China has no effect on the direction of Direxion Daily i.e., Direxion Daily and KraneShares MSCI go up and down completely randomly.

Pair Corralation between Direxion Daily and KraneShares MSCI

Considering the 90-day investment horizon Direxion Daily 20 is expected to generate 1.21 times more return on investment than KraneShares MSCI. However, Direxion Daily is 1.21 times more volatile than KraneShares MSCI China. It trades about 0.2 of its potential returns per unit of risk. KraneShares MSCI China is currently generating about -0.03 per unit of risk. If you would invest  3,392  in Direxion Daily 20 on October 9, 2024 and sell it today you would earn a total of  650.00  from holding Direxion Daily 20 or generate 19.16% return on investment over 90 days.

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

Direxion Daily 20  vs.  KraneShares MSCI China

Direxion Daily 20

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily 20 are ranked lower than 12 (%) 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.

KraneShares MSCI China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KraneShares MSCI China has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with Direxion Daily and KraneShares MSCI

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

The idea behind Direxion Daily 20 and KraneShares MSCI China 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.