Correlation Between Direxion Daily and DAX Midcap

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

Diversification Opportunities for Direxion Daily and DAX Midcap

0.32

Correlation Coefficient

Direxion Daily  DAX Midcap

Weak diversification

The 3 months correlation between Direxion and DAX is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and DAX Midcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAX Midcap 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 DAX Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAX Midcap has no effect on the direction of Direxion Daily i.e., Direxion Daily and DAX Midcap go up and down completely randomly.

Pair Corralation between Direxion Daily and DAX Midcap

Given the investment horizon of 90 days Direxion Daily Mid is expected to generate 3.2 times more return on investment than DAX Midcap. However, Direxion Daily is 3.2 times more volatile than DAX Midcap. It trades about 0.19 of its potential returns per unit of risk. DAX Midcap is currently generating about 0.14 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	Very Weak
Accuracy	98.44%
Values	Daily Returns

Direxion Daily Mid  vs.  DAX Midcap

Pair Trading with Direxion Daily and DAX Midcap

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

The idea behind Direxion Daily Mid and DAX Midcap 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.