Correlation Between Direxion Daily and Matthews China

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

Diversification Opportunities for Direxion Daily and Matthews China

-0.83

Correlation Coefficient

Direxion Daily  Matthews China

Pay attention - limited upside

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

Pair Corralation between Direxion Daily and Matthews China

Considering the 90-day investment horizon Direxion Daily 20 is expected to under-perform the Matthews China. In addition to that, Direxion Daily is 1.45 times more volatile than Matthews China Active. It trades about -0.06 of its total potential returns per unit of risk. Matthews China Active is currently generating about 0.17 per unit of volatility. If you would invest  2,232  in Matthews China Active on December 20, 2024 and sell it today you would earn a total of  368.00  from holding Matthews China Active or generate 16.49% 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.  Matthews China Active

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.

Matthews China Active

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Matthews China Active are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Matthews China demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and Matthews China

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

The idea behind Direxion Daily 20 and Matthews China Active 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.