Correlation Between Direxion Daily and Innovator
Can any of the company-specific risk be diversified away by investing in both Direxion Daily and Innovator 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 Innovator into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion Daily NVDA and Innovator SP 500, you can compare the effects of market volatilities on Direxion Daily and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Innovator.
Diversification Opportunities for Direxion Daily and Innovator
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direxion and Innovator is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 NVDA are associated (or correlated) with Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Direxion Daily i.e., Direxion Daily and Innovator go up and down completely randomly.
Pair Corralation between Direxion Daily and Innovator
Given the investment horizon of 90 days Direxion Daily NVDA is expected to generate 19.11 times more return on investment than Innovator. However, Direxion Daily is 19.11 times more volatile than Innovator SP 500. It trades about 0.07 of its potential returns per unit of risk. Innovator SP 500 is currently generating about 0.13 per unit of risk. If you would invest 9,681 in Direxion Daily NVDA on August 24, 2024 and sell it today you would earn a total of 3,475 from holding Direxion Daily NVDA or generate 35.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direxion Daily NVDA vs. Innovator SP 500
Performance |
| Timeline |
| Direxion Daily NVDA |
| Innovator SP 500 |
Direxion Daily and Innovator Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direxion Daily and Innovator
The main advantage of trading using opposite Direxion Daily and Innovator positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, Innovator 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 Innovator will offset losses from the drop in Innovator's long position.| Direxion Daily vs. Franklin Templeton ETF | Direxion Daily vs. Tidal Trust II | Direxion Daily vs. Tidal Trust II | Direxion Daily vs. iShares Dividend and |
| Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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