Correlation Between Direxion Daily and MicroSectors Solactive
Can any of the company-specific risk be diversified away by investing in both Direxion Daily and MicroSectors Solactive 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 MicroSectors Solactive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion Daily Technology and MicroSectors Solactive FANG, you can compare the effects of market volatilities on Direxion Daily and MicroSectors Solactive 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 MicroSectors Solactive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and MicroSectors Solactive.
Diversification Opportunities for Direxion Daily and MicroSectors Solactive
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direxion and MicroSectors is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Technology and MicroSectors Solactive FANG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Solactive 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 Technology are associated (or correlated) with MicroSectors Solactive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Solactive has no effect on the direction of Direxion Daily i.e., Direxion Daily and MicroSectors Solactive go up and down completely randomly.
Pair Corralation between Direxion Daily and MicroSectors Solactive
Given the investment horizon of 90 days Direxion Daily Technology is expected to under-perform the MicroSectors Solactive. But the etf apears to be less risky and, when comparing its historical volatility, Direxion Daily Technology is 1.18 times less risky than MicroSectors Solactive. The etf trades about -0.03 of its potential returns per unit of risk. The MicroSectors Solactive FANG is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 15,768 in MicroSectors Solactive FANG on August 30, 2024 and sell it today you would lose (55.00) from holding MicroSectors Solactive FANG or give up 0.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Direxion Daily Technology vs. MicroSectors Solactive FANG
Performance |
| Timeline |
| Direxion Daily Technology |
| MicroSectors Solactive |
Direxion Daily and MicroSectors Solactive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direxion Daily and MicroSectors Solactive
The main advantage of trading using opposite Direxion Daily and MicroSectors Solactive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, MicroSectors Solactive 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 MicroSectors Solactive will offset losses from the drop in MicroSectors Solactive's long position.| Direxion Daily vs. Direxion Daily Semiconductor | Direxion Daily vs. Direxion Daily SP500 | Direxion Daily vs. Direxion Daily Technology | Direxion Daily vs. Direxion Daily SP |
| MicroSectors Solactive vs. MicroSectors FANG Index | MicroSectors Solactive vs. Direxion Daily Dow | MicroSectors Solactive vs. Direxion Daily Semiconductor |
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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