Correlation Between MicroSectors FANG and Direxion
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG 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 MicroSectors FANG and Direxion into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and Direxion, you can compare the effects of market volatilities on MicroSectors FANG 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 MicroSectors FANG with a short position of Direxion. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Direxion.
Diversification Opportunities for MicroSectors FANG and Direxion
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between MicroSectors and Direxion is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Direxion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion and MicroSectors FANG 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 MicroSectors FANG Index 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 MicroSectors FANG i.e., MicroSectors FANG and Direxion go up and down completely randomly.
Pair Corralation between MicroSectors FANG and Direxion
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 2.52 times more return on investment than Direxion. However, MicroSectors FANG is 2.52 times more volatile than Direxion. It trades about 0.12 of its potential returns per unit of risk. Direxion is currently generating about 0.11 per unit of risk. If you would invest 5,122 in MicroSectors FANG Index on September 5, 2024 and sell it today you would earn a total of 48,803 from holding MicroSectors FANG Index or generate 952.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 10.1% |
| Values | Daily Returns |
MicroSectors FANG Index vs. Direxion
Performance |
| Timeline |
| MicroSectors FANG Index |
| Direxion |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
MicroSectors FANG and Direxion Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and Direxion
The main advantage of trading using opposite MicroSectors FANG and Direxion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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.The idea behind MicroSectors FANG Index and Direxion pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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