Correlation Between Direxion Daily and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and Nasdaq 100 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 Nasdaq 100 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 Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Direxion Daily and Nasdaq 100 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 Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Nasdaq 100.

Diversification Opportunities for Direxion Daily and Nasdaq 100

0.86

Correlation Coefficient

Direxion Daily  Nasdaq 100

Very poor diversification

The 3 months correlation between Direxion and Nasdaq is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 2x 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 Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Direxion Daily i.e., Direxion Daily and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Direxion Daily and Nasdaq 100

Given the investment horizon of 90 days Direxion Daily Mid is expected to generate 1.39 times more return on investment than Nasdaq 100. However, Direxion Daily is 1.39 times more volatile than Nasdaq 100 2x Strategy. It trades about 0.19 of its potential returns per unit of risk. Nasdaq 100 2x Strategy is currently generating about 0.16 per unit of risk. If you would invest  4,925  in Direxion Daily Mid on September 4, 2024 and sell it today you would earn a total of  1,807  from holding Direxion Daily Mid or generate 36.69% return on investment over 90 days.

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

Direxion Daily Mid  vs.  Nasdaq 100 2x Strategy

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.

Nasdaq 100 2x

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Nasdaq 100 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and Nasdaq 100

The main advantage of trading using opposite Direxion Daily and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind Direxion Daily Mid and Nasdaq 100 2x Strategy 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.