Correlation Between IShares Trust and Direxion Daily
Can any of the company-specific risk be diversified away by investing in both IShares Trust and Direxion Daily 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 IShares Trust and Direxion Daily into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Trust and Direxion Daily Small, you can compare the effects of market volatilities on IShares Trust and Direxion Daily 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 IShares Trust with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and Direxion Daily.
Diversification Opportunities for IShares Trust and Direxion Daily
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and Direxion is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Direxion Daily Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Small and IShares Trust 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 iShares Trust are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily Small has no effect on the direction of IShares Trust i.e., IShares Trust and Direxion Daily go up and down completely randomly.
Pair Corralation between IShares Trust and Direxion Daily
Given the investment horizon of 90 days IShares Trust is expected to generate 1.96 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, iShares Trust is 6.1 times less risky than Direxion Daily. It trades about 0.16 of its potential returns per unit of risk. Direxion Daily Small is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,479 in Direxion Daily Small on August 31, 2024 and sell it today you would earn a total of 2,110 from holding Direxion Daily Small or generate 60.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 74.6% |
| Values | Daily Returns |
iShares Trust vs. Direxion Daily Small
Performance |
| Timeline |
| iShares Trust |
| Direxion Daily Small |
IShares Trust and Direxion Daily Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Trust and Direxion Daily
The main advantage of trading using opposite IShares Trust and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust position performs unexpectedly, Direxion Daily 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 Daily will offset losses from the drop in Direxion Daily's long position.| IShares Trust vs. Prime Medicine, Common | IShares Trust vs. Harbor ETF Trust | IShares Trust vs. IQ Healthy Hearts | IShares Trust vs. DBX ETF Trust |
| Direxion Daily vs. Direxion Daily Small | Direxion Daily vs. Direxion Daily Financial | Direxion Daily vs. Direxion Daily Energy | Direxion Daily vs. Direxion Daily SP500 |
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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