Correlation Between Direxion Daily and Pacer Benchmark

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

Diversification Opportunities for Direxion Daily and Pacer Benchmark

-0.87

Correlation Coefficient

Direxion Daily  Pacer Benchmark

Pay attention - limited upside

The 3 months correlation between Direxion and Pacer is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and Pacer Benchmark Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Benchmark Indu 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 Pacer Benchmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Benchmark Indu has no effect on the direction of Direxion Daily i.e., Direxion Daily and Pacer Benchmark go up and down completely randomly.

Pair Corralation between Direxion Daily and Pacer Benchmark

Given the investment horizon of 90 days Direxion Daily Dow is expected to generate 3.04 times more return on investment than Pacer Benchmark. However, Direxion Daily is 3.04 times more volatile than Pacer Benchmark Industrial. It trades about 0.36 of its potential returns per unit of risk. Pacer Benchmark Industrial is currently generating about -0.23 per unit of risk. If you would invest  1,622  in Direxion Daily Dow on September 13, 2024 and sell it today you would earn a total of  1,532  from holding Direxion Daily Dow or generate 94.45% return on investment over 90 days.

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

Direxion Daily Dow  vs.  Pacer Benchmark Industrial

Direxion Daily Dow

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Dow are ranked lower than 28 (%) 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.

Pacer Benchmark Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacer Benchmark Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with Direxion Daily and Pacer Benchmark

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

The idea behind Direxion Daily Dow and Pacer Benchmark Industrial 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 Global Correlations module to find global opportunities by holding instruments from different markets.