Correlation Between Direxion Daily and SPDR SP

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

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

Diversification Opportunities for Direxion Daily and SPDR SP

0.19

Correlation Coefficient

Direxion Daily  SPDR SP

Average diversification

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

Pair Corralation between Direxion Daily and SPDR SP

Given the investment horizon of 90 days Direxion Daily Gold is expected to generate 3.45 times more return on investment than SPDR SP. However, Direxion Daily is 3.45 times more volatile than SPDR SP North. It trades about 0.03 of its potential returns per unit of risk. SPDR SP North is currently generating about 0.02 per unit of risk. If you would invest  3,671  in Direxion Daily Gold on September 12, 2024 and sell it today you would earn a total of  698.00  from holding Direxion Daily Gold or generate 19.01% return on investment over 90 days.

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

Direxion Daily Gold  vs.  SPDR SP North

Direxion Daily Gold

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Direxion Daily Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Direxion Daily is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR SP North

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP North are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Direxion Daily and SPDR SP

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

The idea behind Direxion Daily Gold and SPDR SP North 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.