Correlation Between Direxion Daily and Principal
Can any of the company-specific risk be diversified away by investing in both Direxion Daily and Principal 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 Principal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion Daily Mid and Principal, you can compare the effects of market volatilities on Direxion Daily and Principal 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 Principal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Principal.
Diversification Opportunities for Direxion Daily and Principal
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direxion and Principal is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal 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 Mid are associated (or correlated) with Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of Direxion Daily i.e., Direxion Daily and Principal go up and down completely randomly.
Pair Corralation between Direxion Daily and Principal
Given the investment horizon of 90 days Direxion Daily Mid is expected to generate 2.48 times more return on investment than Principal. However, Direxion Daily is 2.48 times more volatile than Principal. It trades about 0.05 of its potential returns per unit of risk. Principal is currently generating about 0.04 per unit of risk. If you would invest 3,781 in Direxion Daily Mid on September 4, 2024 and sell it today you would earn a total of 2,951 from holding Direxion Daily Mid or generate 78.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 30.77% |
| Values | Daily Returns |
Direxion Daily Mid vs. Principal
Performance |
| Timeline |
| Direxion Daily Mid |
| Principal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Direxion Daily and Principal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direxion Daily and Principal
The main advantage of trading using opposite Direxion Daily and Principal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, Principal 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 Principal will offset losses from the drop in Principal's long position.| Direxion Daily vs. Direxion Daily Retail | Direxion Daily vs. Direxion Daily Industrials | Direxion Daily vs. Direxion Daily Transportation | Direxion Daily vs. Direxion Daily FTSE |
| Principal vs. Invesco DWA Emerging | Principal vs. SCOR PK | Principal vs. HUMANA INC | Principal vs. Aquagold International |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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