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 SP 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

-0.93

Correlation Coefficient

Direxion Daily  IShares Oil

Pay attention - limited upside

The 3 months correlation between Direxion and IShares is -0.93. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP 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 SP 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 SP is expected to under-perform the IShares Oil. In addition to that, Direxion Daily is 1.61 times more volatile than iShares Oil Equipment. It trades about -0.08 of its total potential returns per unit of risk. iShares Oil Equipment is currently generating about 0.08 per unit of volatility. If you would invest  1,917  in iShares Oil Equipment on September 12, 2024 and sell it today you would earn a total of  183.00  from holding iShares Oil Equipment or generate 9.55% return on investment over 90 days.

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

Direxion Daily SP  vs.  iShares Oil Equipment

Direxion Daily SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily SP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Etf's forward indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

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 SP 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.