Correlation Between UBS ETRACS and Direxion Daily

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

By analyzing existing cross correlation between UBS ETRACS and Direxion Daily CSI, you can compare the effects of market volatilities on UBS ETRACS and Direxion Daily 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 UBS ETRACS with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of UBS ETRACS and Direxion Daily.

Diversification Opportunities for UBS ETRACS and Direxion Daily

-0.35

Correlation Coefficient

UBS ETRACS  Direxion Daily

Very good diversification

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

Pair Corralation between UBS ETRACS and Direxion Daily

Given the investment horizon of 90 days UBS ETRACS is expected to generate 1.43 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, UBS ETRACS is 1.8 times less risky than Direxion Daily. It trades about 0.1 of its potential returns per unit of risk. Direxion Daily CSI is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,204  in Direxion Daily CSI on September 20, 2024 and sell it today you would earn a total of  274.00  from holding Direxion Daily CSI or generate 22.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

UBS ETRACS   vs.  Direxion Daily CSI

UBS ETRACS

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in UBS ETRACS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, UBS ETRACS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Direxion Daily CSI

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily CSI are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UBS ETRACS and Direxion Daily

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

The idea behind UBS ETRACS and Direxion Daily CSI 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.