Correlation Between Direxion and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Direxion and Dow Jones 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 and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion and Dow Jones Industrial, you can compare the effects of market volatilities on Direxion and Dow Jones 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 with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion and Dow Jones.
Diversification Opportunities for Direxion and Dow Jones
Weak diversification
The 3 months correlation between Direxion and Dow is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Direxion and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Direxion 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 are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Direxion i.e., Direxion and Dow Jones go up and down completely randomly.
Pair Corralation between Direxion and Dow Jones
Given the investment horizon of 90 days Direxion is expected to under-perform the Dow Jones. In addition to that, Direxion is 2.8 times more volatile than Dow Jones Industrial. It trades about -0.01 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.15 per unit of volatility. If you would invest 3,409,586 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 1,081,479 from holding Dow Jones Industrial or generate 31.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 65.8% |
| Values | Daily Returns |
Direxion vs. Dow Jones Industrial
Performance |
| Timeline |
Direxion and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Direxion
Pair trading matchups for Direxion
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Direxion and Dow Jones
The main advantage of trading using opposite Direxion and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Direxion vs. Global X Hydrogen | Direxion vs. Defiance Next Gen | Direxion vs. Fusion Fuel Green | Direxion vs. Amplify Lithium Battery |
| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
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.
Other Complementary Tools
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Earnings Calls Check upcoming earnings announcements updated hourly across public exchanges | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets |