Correlation Between Direxion Daily and SSgA SPDR

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and SSgA SPDR 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 SSgA SPDR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Direxion Daily AMZN and SSgA SPDR ETFs, you can compare the effects of market volatilities on Direxion Daily and SSgA SPDR 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 SSgA SPDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and SSgA SPDR.

Diversification Opportunities for Direxion Daily and SSgA SPDR

-0.57

Correlation Coefficient

Direxion Daily  SSgA SPDR

Excellent diversification

The 3 months correlation between Direxion and SSgA is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily AMZN and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs 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 AMZN are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of Direxion Daily i.e., Direxion Daily and SSgA SPDR go up and down completely randomly.

Pair Corralation between Direxion Daily and SSgA SPDR

Given the investment horizon of 90 days Direxion Daily AMZN is expected to generate 4.7 times more return on investment than SSgA SPDR. However, Direxion Daily is 4.7 times more volatile than SSgA SPDR ETFs. It trades about 0.15 of its potential returns per unit of risk. SSgA SPDR ETFs is currently generating about -0.1 per unit of risk. If you would invest  3,186  in Direxion Daily AMZN on September 30, 2024 and sell it today you would earn a total of  1,203  from holding Direxion Daily AMZN or generate 37.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Direxion Daily AMZN  vs.  SSgA SPDR ETFs

Direxion Daily AMZN

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily AMZN are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

SSgA SPDR ETFs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSgA SPDR ETFs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, SSgA SPDR is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Direxion Daily and SSgA SPDR

The main advantage of trading using opposite Direxion Daily and SSgA SPDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, SSgA SPDR 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 SSgA SPDR will offset losses from the drop in SSgA SPDR's long position.

The idea behind Direxion Daily AMZN and SSgA SPDR ETFs 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.

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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.