Correlation Between Direxion Daily and IShares Expanded

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

By analyzing existing cross correlation between Direxion Daily Cnsmr and iShares Expanded Tech Software, you can compare the effects of market volatilities on Direxion Daily and IShares Expanded 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 IShares Expanded. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and IShares Expanded.

Diversification Opportunities for Direxion Daily and IShares Expanded

0.96

Correlation Coefficient

Direxion Daily  IShares Expanded

Almost no diversification

The 3 months correlation between Direxion and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Cnsmr and iShares Expanded Tech Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Expanded Tech 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 Cnsmr are associated (or correlated) with IShares Expanded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Expanded Tech has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares Expanded go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares Expanded

Given the investment horizon of 90 days Direxion Daily Cnsmr is expected to generate 1.96 times more return on investment than IShares Expanded. However, Direxion Daily is 1.96 times more volatile than iShares Expanded Tech Software. It trades about 0.36 of its potential returns per unit of risk. iShares Expanded Tech Software is currently generating about 0.13 per unit of risk. If you would invest  5,219  in Direxion Daily Cnsmr on September 12, 2024 and sell it today you would earn a total of  1,241  from holding Direxion Daily Cnsmr or generate 23.78% return on investment over 90 days.

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

Direxion Daily Cnsmr  vs.  iShares Expanded Tech Software

Direxion Daily Cnsmr

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Cnsmr are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares Expanded Tech

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech Software are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, IShares Expanded showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and IShares Expanded

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

The idea behind Direxion Daily Cnsmr and iShares Expanded Tech Software 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.