Correlation Between Direxion Daily and VanEck Mortgage

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

Diversification Opportunities for Direxion Daily and VanEck Mortgage

-0.46

Correlation Coefficient

Direxion Daily  VanEck Mortgage

Very good diversification

The 3 months correlation between Direxion and VanEck is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and VanEck Mortgage REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Mortgage REIT 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 VanEck Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Mortgage REIT has no effect on the direction of Direxion Daily i.e., Direxion Daily and VanEck Mortgage go up and down completely randomly.

Pair Corralation between Direxion Daily and VanEck Mortgage

Given the investment horizon of 90 days Direxion Daily Dow is expected to generate 5.94 times more return on investment than VanEck Mortgage. However, Direxion Daily is 5.94 times more volatile than VanEck Mortgage REIT. It trades about 0.27 of its potential returns per unit of risk. VanEck Mortgage REIT is currently generating about 0.19 per unit of risk. If you would invest  2,617  in Direxion Daily Dow on September 14, 2024 and sell it today you would earn a total of  537.00  from holding Direxion Daily Dow or generate 20.52% return on investment over 90 days.

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

Direxion Daily Dow  vs.  VanEck Mortgage REIT

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.

VanEck Mortgage REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Mortgage REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, VanEck Mortgage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Direxion Daily and VanEck Mortgage

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

The idea behind Direxion Daily Dow and VanEck Mortgage REIT 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.