Correlation Between MicroSectors FANG and Direxion Shares
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Direxion Shares 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 Shares 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 Shares ETF, you can compare the effects of market volatilities on MicroSectors FANG and Direxion Shares 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 Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Direxion Shares.
Diversification Opportunities for MicroSectors FANG and Direxion Shares
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MicroSectors and Direxion is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF 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 Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Direxion Shares go up and down completely randomly.
Pair Corralation between MicroSectors FANG and Direxion Shares
Given the investment horizon of 90 days MicroSectors FANG is expected to generate 4.41 times less return on investment than Direxion Shares. But when comparing it to its historical volatility, MicroSectors FANG Index is 2.33 times less risky than Direxion Shares. It trades about 0.14 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 1,313 in Direxion Shares ETF on August 28, 2024 and sell it today you would earn a total of 750.00 from holding Direxion Shares ETF or generate 57.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. Direxion Shares ETF
Performance |
| Timeline |
| MicroSectors FANG Index |
| Direxion Shares ETF |
MicroSectors FANG and Direxion Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and Direxion Shares
The main advantage of trading using opposite MicroSectors FANG and Direxion Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, Direxion Shares 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 Shares will offset losses from the drop in Direxion Shares' long position.| MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. MicroSectors Solactive FANG | MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Technology |
| Direxion Shares vs. Direxion Daily SP | Direxion Shares vs. Direxion Daily Semiconductor | Direxion Shares vs. Direxion Daily Semiconductor |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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