Correlation Between Direxion Daily and IShares Oil

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

By analyzing existing cross correlation between Direxion Daily Regional and iShares Oil Equipment, you can compare the effects of market volatilities on Direxion Daily and IShares Oil 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 IShares Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and IShares Oil.

Diversification Opportunities for Direxion Daily and IShares Oil

0.69

Correlation Coefficient

Direxion Daily  IShares Oil

Poor diversification

The 3 months correlation between Direxion and IShares is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Regional and iShares Oil Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Oil Equipment 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 Regional are associated (or correlated) with IShares Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Oil Equipment has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares Oil go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares Oil

Given the investment horizon of 90 days Direxion Daily Regional is expected to generate 3.41 times more return on investment than IShares Oil. However, Direxion Daily is 3.41 times more volatile than iShares Oil Equipment. It trades about 0.14 of its potential returns per unit of risk. iShares Oil Equipment is currently generating about 0.08 per unit of risk. If you would invest  8,780  in Direxion Daily Regional on September 12, 2024 and sell it today you would earn a total of  5,509  from holding Direxion Daily Regional or generate 62.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Direxion Daily Regional  vs.  iShares Oil Equipment

Direxion Daily Regional

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Regional are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares Oil Equipment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Oil Equipment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, IShares Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and IShares Oil

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

The idea behind Direxion Daily Regional and iShares Oil Equipment 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.