Correlation Between Dow Jones and Direxion Shares
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Direxion Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Direxion Shares ETF, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Direxion Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Direxion Shares.
Diversification Opportunities for Dow Jones and Direxion Shares
-0.92 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Dow and Direxion is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Direxion Shares go up and down completely randomly.
Pair Corralation between Dow Jones and Direxion Shares
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.22 times more return on investment than Direxion Shares. However, Dow Jones Industrial is 4.5 times less risky than Direxion Shares. It trades about 0.37 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about -0.31 per unit of risk. If you would invest 4,179,460 in Dow Jones Industrial on September 4, 2024 and sell it today you would earn a total of 298,740 from holding Dow Jones Industrial or generate 7.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Dow Jones Industrial vs. Direxion Shares ETF
Performance |
| Timeline |
Dow Jones and Direxion Shares Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Direxion Shares ETF
Pair trading matchups for Direxion Shares
Pair Trading with Dow Jones and Direxion Shares
The main advantage of trading using opposite Dow Jones and Direxion Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Gentex | Dow Jones vs. American Axle Manufacturing | Dow Jones vs. Pearson PLC ADR | Dow Jones vs. Marine Products |
| Direxion Shares vs. Vanguard Index Funds | Direxion Shares vs. Vanguard Index Funds | Direxion Shares vs. Vanguard STAR Funds | Direxion Shares vs. SPDR SP 500 |
Check out your portfolio center.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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