Correlation Between Vanguard Small and Direxion Daily

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

By analyzing existing cross correlation between Vanguard Small Cap Index and Direxion Daily GOOGL, you can compare the effects of market volatilities on Vanguard Small and Direxion Daily 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 Vanguard Small with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Direxion Daily.

Diversification Opportunities for Vanguard Small and Direxion Daily

-0.9

Correlation Coefficient

Vanguard Small  Direxion Daily

Pay attention - limited upside

The 3 months correlation between Vanguard and Direxion is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Direxion Daily GOOGL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily GOOGL and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily GOOGL has no effect on the direction of Vanguard Small i.e., Vanguard Small and Direxion Daily go up and down completely randomly.

Pair Corralation between Vanguard Small and Direxion Daily

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Index is 1.78 times less risky than Direxion Daily. The etf trades about -0.1 of its potential returns per unit of risk. The Direxion Daily GOOGL is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,197  in Direxion Daily GOOGL on December 29, 2024 and sell it today you would earn a total of  267.00  from holding Direxion Daily GOOGL or generate 22.31% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Direxion Daily GOOGL

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Direxion Daily GOOGL

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily GOOGL are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Small and Direxion Daily

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

The idea behind Vanguard Small Cap Index and Direxion Daily GOOGL 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.