Correlation Between Direxion Daily and Direxion

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

Diversification Opportunities for Direxion Daily and Direxion

-0.74

Correlation Coefficient

Direxion Daily  Direxion

Pay attention - limited upside

The 3 months correlation between Direxion and Direxion is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and Direxion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion 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 Direxion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion has no effect on the direction of Direxion Daily i.e., Direxion Daily and Direxion go up and down completely randomly.

Pair Corralation between Direxion Daily and Direxion

If you would invest  1,669  in Direxion Daily Dow on September 18, 2024 and sell it today you would earn a total of  1,504  from holding Direxion Daily Dow or generate 90.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Direxion Daily Dow  vs.  Direxion

Direxion Daily Dow

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Dow are ranked lower than 26 (%) 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.

Direxion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Direxion is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and Direxion

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

The idea behind Direxion Daily Dow and Direxion 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.