Correlation Between Direxion Daily and Innovator MSCI

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

Diversification Opportunities for Direxion Daily and Innovator MSCI

-0.35

Correlation Coefficient

Direxion Daily  Innovator MSCI

Very good diversification

The 3 months correlation between Direxion and Innovator is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and Innovator MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator MSCI EAFE 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 Innovator MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator MSCI EAFE has no effect on the direction of Direxion Daily i.e., Direxion Daily and Innovator MSCI go up and down completely randomly.

Pair Corralation between Direxion Daily and Innovator MSCI

Given the investment horizon of 90 days Direxion Daily Dow is expected to under-perform the Innovator MSCI. In addition to that, Direxion Daily is 8.31 times more volatile than Innovator MSCI EAFE. It trades about -0.11 of its total potential returns per unit of risk. Innovator MSCI EAFE is currently generating about 0.2 per unit of volatility. If you would invest  3,041  in Innovator MSCI EAFE on December 24, 2024 and sell it today you would earn a total of  191.00  from holding Innovator MSCI EAFE or generate 6.28% return on investment over 90 days.

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

Direxion Daily Dow  vs.  Innovator MSCI EAFE

Direxion Daily Dow

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily Dow has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Etf's fundamental drivers remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

Innovator MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator MSCI EAFE are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Innovator MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Direxion Daily and Innovator MSCI

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

The idea behind Direxion Daily Dow and Innovator MSCI EAFE 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.