Correlation Between SPDR Series and Direxion Shares

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

By analyzing existing cross correlation between SPDR Series Trust and Direxion Shares ETF, you can compare the effects of market volatilities on SPDR Series and Direxion Shares 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 SPDR Series with a short position of Direxion Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Series and Direxion Shares.

Diversification Opportunities for SPDR Series and Direxion Shares

-0.69

Correlation Coefficient

SPDR Series  Direxion Shares

Excellent diversification

The 3 months correlation between SPDR and Direxion is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Series Trust and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF and SPDR Series 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 SPDR Series Trust are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of SPDR Series i.e., SPDR Series and Direxion Shares go up and down completely randomly.

Pair Corralation between SPDR Series and Direxion Shares

Assuming the 90 days trading horizon SPDR Series is expected to generate 1.71 times less return on investment than Direxion Shares. But when comparing it to its historical volatility, SPDR Series Trust is 2.44 times less risky than Direxion Shares. It trades about 0.23 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  11,872  in Direxion Shares ETF on October 9, 2024 and sell it today you would earn a total of  1,018  from holding Direxion Shares ETF or generate 8.57% return on investment over 90 days.

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

SPDR Series Trust  vs.  Direxion Shares ETF

SPDR Series Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Series Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, SPDR Series showed solid returns over the last few months and may actually be approaching a breakup point.

Direxion Shares ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Shares ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with SPDR Series and Direxion Shares

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

The idea behind SPDR Series Trust and Direxion Shares ETF 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.