Correlation Between Direxion Daily and IndexIQ

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

Diversification Opportunities for Direxion Daily and IndexIQ

0.31

Correlation Coefficient

Direxion Daily  IndexIQ

Weak diversification

The 3 months correlation between Direxion and IndexIQ is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily 20 and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ 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 IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of Direxion Daily i.e., Direxion Daily and IndexIQ go up and down completely randomly.

Pair Corralation between Direxion Daily and IndexIQ

Considering the 90-day investment horizon Direxion Daily 20 is expected to generate 3.16 times more return on investment than IndexIQ. However, Direxion Daily is 3.16 times more volatile than IndexIQ. It trades about 0.1 of its potential returns per unit of risk. IndexIQ is currently generating about -0.19 per unit of risk. If you would invest  3,467  in Direxion Daily 20 on October 25, 2024 and sell it today you would earn a total of  507.00  from holding Direxion Daily 20 or generate 14.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	33.9%
Values	Daily Returns

Direxion Daily 20  vs.  IndexIQ

Direxion Daily 20

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily 20 are ranked lower than 7 (%) 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.

IndexIQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Direxion Daily and IndexIQ

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

The idea behind Direxion Daily 20 and IndexIQ 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.