Correlation Between Direxion Daily and POWR Lithium

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

Diversification Opportunities for Direxion Daily and POWR Lithium

0.19

Correlation Coefficient

Direxion Daily  POWR Lithium

Average diversification

The 3 months correlation between Direxion and POWR is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and POWR Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POWR Lithium Corp 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 POWR Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POWR Lithium Corp has no effect on the direction of Direxion Daily i.e., Direxion Daily and POWR Lithium go up and down completely randomly.

Pair Corralation between Direxion Daily and POWR Lithium

Given the investment horizon of 90 days Direxion Daily is expected to generate 13.26 times less return on investment than POWR Lithium. But when comparing it to its historical volatility, Direxion Daily Mid is 22.89 times less risky than POWR Lithium. It trades about 0.22 of its potential returns per unit of risk. POWR Lithium Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4.10  in POWR Lithium Corp on September 6, 2024 and sell it today you would lose (0.28) from holding POWR Lithium Corp or give up 6.83% of portfolio value over 90 days.

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

Direxion Daily Mid  vs.  POWR Lithium Corp

Direxion Daily Mid

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Mid are ranked lower than 17 (%) 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.

POWR Lithium Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in POWR Lithium Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, POWR Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and POWR Lithium

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

The idea behind Direxion Daily Mid and POWR Lithium Corp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.