Correlation Between 3M and Direxion Shares
Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Direxion Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Direxion Shares ETF, you can compare the effects of market volatilities on 3M 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 3M with a short position of Direxion Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Direxion Shares.
Diversification Opportunities for 3M and Direxion Shares
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between 3M and Direxion is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company 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 3M 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 3M Company 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 3M i.e., 3M and Direxion Shares go up and down completely randomly.
Pair Corralation between 3M and Direxion Shares
Considering the 90-day investment horizon 3M Company is expected to generate 0.45 times more return on investment than Direxion Shares. However, 3M Company is 2.23 times less risky than Direxion Shares. It trades about 0.42 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about -0.16 per unit of risk. If you would invest 13,453 in 3M Company on November 9, 2024 and sell it today you would earn a total of 1,779 from holding 3M Company or generate 13.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
3M Company vs. Direxion Shares ETF
Performance |
| Timeline |
| 3M Company |
| Direxion Shares ETF |
3M and Direxion Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Direxion Shares
The main advantage of trading using opposite 3M and Direxion Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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.The idea behind 3M Company and Direxion Shares ETF 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.| Direxion Shares vs. Freedom Day Dividend | Direxion Shares vs. Franklin Templeton ETF | Direxion Shares vs. iShares MSCI China | Direxion Shares vs. Tidal Trust II |
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 Valuation module to check real value of public entities based on technical and fundamental data.
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