Correlation Between Direxion Daily and MicroSectors FANG
Can any of the company-specific risk be diversified away by investing in both Direxion Daily and MicroSectors FANG 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 MicroSectors FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion Daily SP and MicroSectors FANG Index, you can compare the effects of market volatilities on Direxion Daily and MicroSectors FANG 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 MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and MicroSectors FANG.
Diversification Opportunities for Direxion Daily and MicroSectors FANG
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direxion and MicroSectors is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index 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 SP are associated (or correlated) with MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of Direxion Daily i.e., Direxion Daily and MicroSectors FANG go up and down completely randomly.
Pair Corralation between Direxion Daily and MicroSectors FANG
Given the investment horizon of 90 days Direxion Daily SP is expected to under-perform the MicroSectors FANG. But the etf apears to be less risky and, when comparing its historical volatility, Direxion Daily SP is 1.31 times less risky than MicroSectors FANG. The etf trades about -0.3 of its potential returns per unit of risk. The MicroSectors FANG Index is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 1,847 in MicroSectors FANG Index on August 30, 2024 and sell it today you would lose (140.00) from holding MicroSectors FANG Index or give up 7.58% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direxion Daily SP vs. MicroSectors FANG Index
Performance |
| Timeline |
| Direxion Daily SP |
| MicroSectors FANG Index |
Direxion Daily and MicroSectors FANG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direxion Daily and MicroSectors FANG
The main advantage of trading using opposite Direxion Daily and MicroSectors FANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, MicroSectors FANG 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 MicroSectors FANG will offset losses from the drop in MicroSectors FANG's long position.| Direxion Daily vs. First Trust Exchange Traded | Direxion Daily vs. Ultimus Managers Trust | Direxion Daily vs. Horizon Kinetics Medical | Direxion Daily vs. Harbor Health Care |
| MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. Direxion Daily Technology | MicroSectors FANG vs. Direxion Daily SP |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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