Correlation Between Empire State and Direxion Daily

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

By analyzing existing cross correlation between Empire State Realty and Direxion Daily SP, you can compare the effects of market volatilities on Empire State and Direxion Daily 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 Empire State with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empire State and Direxion Daily.

Diversification Opportunities for Empire State and Direxion Daily

-0.59

Correlation Coefficient

Empire State  Direxion Daily

Excellent diversification

The 3 months correlation between Empire and Direxion is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Empire State Realty and Direxion Daily SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP and Empire State 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 Empire State Realty are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily SP has no effect on the direction of Empire State i.e., Empire State and Direxion Daily go up and down completely randomly.

Pair Corralation between Empire State and Direxion Daily

Given the investment horizon of 90 days Empire State Realty is expected to generate 1.73 times more return on investment than Direxion Daily. However, Empire State is 1.73 times more volatile than Direxion Daily SP. It trades about 0.04 of its potential returns per unit of risk. Direxion Daily SP is currently generating about -0.09 per unit of risk. If you would invest  1,075  in Empire State Realty on August 30, 2024 and sell it today you would earn a total of  33.00  from holding Empire State Realty or generate 3.07% return on investment over 90 days.

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

Empire State Realty  vs.  Direxion Daily SP

Empire State Realty

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Empire State Realty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Empire State is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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. In spite of very healthy fundamental indicators, Direxion Daily is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Empire State and Direxion Daily

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

The idea behind Empire State Realty and Direxion Daily SP 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.