Correlation Between Direxion Daily and Materials Portfolio

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

By analyzing existing cross correlation between Direxion Daily Mid and Materials Portfolio Fidelity, you can compare the effects of market volatilities on Direxion Daily and Materials Portfolio 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 Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Materials Portfolio.

Diversification Opportunities for Direxion Daily and Materials Portfolio

0.63

Correlation Coefficient

Direxion Daily  Materials Portfolio

Poor diversification

The 3 months correlation between Direxion and Materials is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio 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 Mid are associated (or correlated) with Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Direxion Daily i.e., Direxion Daily and Materials Portfolio go up and down completely randomly.

Pair Corralation between Direxion Daily and Materials Portfolio

Given the investment horizon of 90 days Direxion Daily Mid is expected to generate 3.22 times more return on investment than Materials Portfolio. However, Direxion Daily is 3.22 times more volatile than Materials Portfolio Fidelity. It trades about 0.19 of its potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about 0.1 per unit of risk. If you would invest  4,707  in Direxion Daily Mid on September 11, 2024 and sell it today you would earn a total of  1,695  from holding Direxion Daily Mid or generate 36.01% return on investment over 90 days.

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

Direxion Daily Mid  vs.  Materials Portfolio Fidelity

Direxion Daily Mid

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Mid are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Materials Portfolio

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Materials Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and Materials Portfolio

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

The idea behind Direxion Daily Mid and Materials Portfolio Fidelity 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.