Correlation Between Direxion Daily and Fidelity Momentum

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

By analyzing existing cross correlation between Direxion Daily Dow and Fidelity Momentum Factor, you can compare the effects of market volatilities on Direxion Daily and Fidelity Momentum 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 Fidelity Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Fidelity Momentum.

Diversification Opportunities for Direxion Daily and Fidelity Momentum

0.95

Correlation Coefficient

Direxion Daily  Fidelity Momentum

Almost no diversification

The 3 months correlation between Direxion and Fidelity is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and Fidelity Momentum Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Momentum Factor 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 Dow are associated (or correlated) with Fidelity Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Momentum Factor has no effect on the direction of Direxion Daily i.e., Direxion Daily and Fidelity Momentum go up and down completely randomly.

Pair Corralation between Direxion Daily and Fidelity Momentum

Given the investment horizon of 90 days Direxion Daily Dow is expected to generate 4.44 times more return on investment than Fidelity Momentum. However, Direxion Daily is 4.44 times more volatile than Fidelity Momentum Factor. It trades about 0.52 of its potential returns per unit of risk. Fidelity Momentum Factor is currently generating about 0.24 per unit of risk. If you would invest  2,365  in Direxion Daily Dow on September 18, 2024 and sell it today you would earn a total of  831.00  from holding Direxion Daily Dow or generate 35.14% 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 Dow  vs.  Fidelity Momentum Factor

Direxion Daily Dow

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Dow are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

Fidelity Momentum Factor

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Momentum Factor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, Fidelity Momentum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and Fidelity Momentum

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

The idea behind Direxion Daily Dow and Fidelity Momentum Factor 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.