Correlation Between Energy Select and Direxion NASDAQ
Can any of the company-specific risk be diversified away by investing in both Energy Select and Direxion NASDAQ 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 Energy Select and Direxion NASDAQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Select Sector and Direxion NASDAQ 100 Equal, you can compare the effects of market volatilities on Energy Select and Direxion NASDAQ 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 Energy Select with a short position of Direxion NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Select and Direxion NASDAQ.
Diversification Opportunities for Energy Select and Direxion NASDAQ
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Direxion is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Energy Select Sector and Direxion NASDAQ 100 Equal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion NASDAQ 100 and Energy Select 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 Energy Select Sector are associated (or correlated) with Direxion NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion NASDAQ 100 has no effect on the direction of Energy Select i.e., Energy Select and Direxion NASDAQ go up and down completely randomly.
Pair Corralation between Energy Select and Direxion NASDAQ
Considering the 90-day investment horizon Energy Select Sector is expected to generate 1.05 times more return on investment than Direxion NASDAQ. However, Energy Select is 1.05 times more volatile than Direxion NASDAQ 100 Equal. It trades about 0.34 of its potential returns per unit of risk. Direxion NASDAQ 100 Equal is currently generating about 0.12 per unit of risk. If you would invest 8,784 in Energy Select Sector on August 30, 2024 and sell it today you would earn a total of 728.00 from holding Energy Select Sector or generate 8.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Energy Select Sector vs. Direxion NASDAQ 100 Equal
Performance |
| Timeline |
| Energy Select Sector |
| Direxion NASDAQ 100 |
Energy Select and Direxion NASDAQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Select and Direxion NASDAQ
The main advantage of trading using opposite Energy Select and Direxion NASDAQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Select position performs unexpectedly, Direxion NASDAQ 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 NASDAQ will offset losses from the drop in Direxion NASDAQ's long position.| Energy Select vs. Financial Select Sector | Energy Select vs. Health Care Select | Energy Select vs. Technology Select Sector | Energy Select vs. Utilities Select Sector |
| Direxion NASDAQ vs. First Trust NASDAQ 100 | Direxion NASDAQ vs. First Trust NASDAQ 100 | Direxion NASDAQ vs. Invesco SP 500 | Direxion NASDAQ vs. Invesco 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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