Correlation Between Direxion Daily and Alphabet

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

Diversification Opportunities for Direxion Daily and Alphabet

0.79

Correlation Coefficient

Direxion Daily  Alphabet

Poor diversification

The 3 months correlation between Direxion and Alphabet is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of Direxion Daily i.e., Direxion Daily and Alphabet go up and down completely randomly.

Pair Corralation between Direxion Daily and Alphabet

Given the investment horizon of 90 days Direxion Daily Mid is expected to generate 1.91 times more return on investment than Alphabet. However, Direxion Daily is 1.91 times more volatile than Alphabet. It trades about 0.29 of its potential returns per unit of risk. Alphabet is currently generating about 0.17 per unit of risk. If you would invest  5,385  in Direxion Daily Mid on September 5, 2024 and sell it today you would earn a total of  1,235  from holding Direxion Daily Mid or generate 22.93% 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.  Alphabet

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.

Alphabet

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Alphabet sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and Alphabet

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

The idea behind Direxion Daily Mid and Alphabet 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.