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 Transportation, 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

-0.54

Correlation Coefficient

UBS ETRACS  Direxion Daily

Excellent diversification

The 3 months correlation between UBS and Direxion is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding UBS ETRACS and Direxion Daily Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Trans 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 Trans 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 76.74 times less return on investment than Direxion Daily. In addition to that, UBS ETRACS is 1.11 times more volatile than Direxion Daily Transportation. It trades about 0.0 of its total potential returns per unit of risk. Direxion Daily Transportation is currently generating about 0.04 per unit of volatility. If you would invest  2,177  in Direxion Daily Transportation on September 16, 2024 and sell it today you would earn a total of  1,116  from holding Direxion Daily Transportation or generate 51.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.15%
Values	Daily Returns

UBS ETRACS   vs.  Direxion Daily Transportation

UBS ETRACS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UBS ETRACS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, UBS ETRACS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Direxion Daily Trans

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Transportation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Transportation 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.