Correlation Between Dow Jones and Direxion
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Direxion 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 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, you can compare the effects of market volatilities on Dow Jones and Direxion 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Direxion.
Diversification Opportunities for Dow Jones and Direxion
Poor diversification
The 3 months correlation between Dow and Direxion is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Direxion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion has no effect on the direction of Dow Jones i.e., Dow Jones and Direxion go up and down completely randomly.
Pair Corralation between Dow Jones and Direxion
Assuming the 90 days trading horizon Dow Jones is expected to generate 7.32 times less return on investment than Direxion. But when comparing it to its historical volatility, Dow Jones Industrial is 3.98 times less risky than Direxion. It trades about 0.07 of its potential returns per unit of risk. Direxion is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 848.00 in Direxion on September 20, 2024 and sell it today you would earn a total of 284.00 from holding Direxion or generate 33.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 17.17% |
| Values | Daily Returns |
Dow Jones Industrial vs. Direxion
Performance |
| Timeline |
Dow Jones and Direxion Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Dow Jones and Direxion
The main advantage of trading using opposite Dow Jones and Direxion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Direxion 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 will offset losses from the drop in Direxion's long position.| Dow Jones vs. Digi International | Dow Jones vs. Grupo Televisa SAB | Dow Jones vs. United Microelectronics | Dow Jones vs. Weibo Corp |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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