Correlation Between Dow Jones and Direxion Daily
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Direxion Daily 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 Daily Cnsmr, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Direxion Daily.
Diversification Opportunities for Dow Jones and Direxion Daily
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Direxion is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Direxion Daily Cnsmr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Cnsmr 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 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 Cnsmr has no effect on the direction of Dow Jones i.e., Dow Jones and Direxion Daily go up and down completely randomly.
Pair Corralation between Dow Jones and Direxion Daily
Assuming the 90 days trading horizon Dow Jones is expected to generate 4.87 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, Dow Jones Industrial is 3.71 times less risky than Direxion Daily. It trades about 0.37 of its potential returns per unit of risk. Direxion Daily Cnsmr is currently generating about 0.49 of returns per unit of risk over similar time horizon. If you would invest 3,824 in Direxion Daily Cnsmr on September 1, 2024 and sell it today you would earn a total of 1,570 from holding Direxion Daily Cnsmr or generate 41.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Direxion Daily Cnsmr
Performance |
| Timeline |
Dow Jones and Direxion Daily Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Direxion Daily Cnsmr
Pair trading matchups for Direxion Daily
Pair Trading with Dow Jones and Direxion Daily
The main advantage of trading using opposite Dow Jones and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Direxion Daily vs. Direxion Daily Industrials | Direxion Daily vs. Direxion Daily Transportation | Direxion Daily vs. Direxion Daily Dow | Direxion Daily vs. Direxion Daily Utilities |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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