Correlation Between Direxion Daily and IShares Expanded

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and IShares Expanded 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 Expanded 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 Expanded Tech Software, you can compare the effects of market volatilities on Direxion Daily and IShares Expanded 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 Expanded. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and IShares Expanded.

Diversification Opportunities for Direxion Daily and IShares Expanded

-0.76

Correlation Coefficient

Direxion Daily  IShares Expanded

Pay attention - limited upside

The 3 months correlation between Direxion and IShares is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and iShares Expanded Tech Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Expanded Tech 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 Expanded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Expanded Tech has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares Expanded go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares Expanded

Given the investment horizon of 90 days Direxion Daily SP is expected to under-perform the IShares Expanded. In addition to that, Direxion Daily is 2.35 times more volatile than iShares Expanded Tech Software. It trades about -0.07 of its total potential returns per unit of risk. iShares Expanded Tech Software is currently generating about 0.25 per unit of volatility. If you would invest  8,759  in iShares Expanded Tech Software on September 12, 2024 and sell it today you would earn a total of  2,023  from holding iShares Expanded Tech Software or generate 23.1% return on investment over 90 days.

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

Direxion Daily SP  vs.  iShares Expanded Tech Software

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 Expanded Tech

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech Software are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, IShares Expanded showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and IShares Expanded

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

The idea behind Direxion Daily SP and iShares Expanded Tech Software 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.