Correlation Between Direxion Daily and Invesco SP

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and Invesco SP 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 Invesco SP 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 Invesco SP 500, you can compare the effects of market volatilities on Direxion Daily and Invesco SP 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 Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Invesco SP.

Diversification Opportunities for Direxion Daily and Invesco SP

0.54

Correlation Coefficient

Direxion Daily  Invesco SP

Very weak diversification

The 3 months correlation between Direxion and Invesco is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of Direxion Daily i.e., Direxion Daily and Invesco SP go up and down completely randomly.

Pair Corralation between Direxion Daily and Invesco SP

Given the investment horizon of 90 days Direxion Daily SP is expected to under-perform the Invesco SP. In addition to that, Direxion Daily is 5.25 times more volatile than Invesco SP 500. It trades about -0.07 of its total potential returns per unit of risk. Invesco SP 500 is currently generating about -0.01 per unit of volatility. If you would invest  3,204  in Invesco SP 500 on September 12, 2024 and sell it today you would lose (14.00) from holding Invesco SP 500 or give up 0.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Direxion Daily SP  vs.  Invesco SP 500

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.

Invesco SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco SP is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Direxion Daily and Invesco SP

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

The idea behind Direxion Daily SP and Invesco SP 500 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.