Correlation Between Direxion Daily and IShares Russell
Can any of the company-specific risk be diversified away by investing in both Direxion Daily and IShares Russell 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 Direxion Daily and IShares Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion Daily Regional and iShares Russell Top, you can compare the effects of market volatilities on Direxion Daily and IShares Russell 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 Direxion Daily with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and IShares Russell.
Diversification Opportunities for Direxion Daily and IShares Russell
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direxion and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Regional and iShares Russell Top in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Top and Direxion Daily 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 Direxion Daily Regional are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Top has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares Russell go up and down completely randomly.
Pair Corralation between Direxion Daily and IShares Russell
Given the investment horizon of 90 days Direxion Daily Regional is expected to generate 7.58 times more return on investment than IShares Russell. However, Direxion Daily is 7.58 times more volatile than iShares Russell Top. It trades about 0.02 of its potential returns per unit of risk. iShares Russell Top is currently generating about 0.12 per unit of risk. If you would invest 23,398 in Direxion Daily Regional on September 1, 2024 and sell it today you would lose (7,754) from holding Direxion Daily Regional or give up 33.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Direxion Daily Regional vs. iShares Russell Top
Performance |
| Timeline |
| Direxion Daily Regional |
| iShares Russell Top |
Direxion Daily and IShares Russell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direxion Daily and IShares Russell
The main advantage of trading using opposite Direxion Daily and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, IShares Russell 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 IShares Russell will offset losses from the drop in IShares Russell's long position.| Direxion Daily vs. Direxion Daily Homebuilders | Direxion Daily vs. Direxion Daily Retail | Direxion Daily vs. Direxion Daily Transportation | Direxion Daily vs. Direxion Daily Aerospace |
| IShares Russell vs. Vanguard Total Stock | IShares Russell vs. SPDR SP 500 | IShares Russell vs. iShares Core SP | IShares Russell vs. Vanguard Dividend Appreciation |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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