Correlation Between Direxion Daily and Cambria Tail

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

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

Diversification Opportunities for Direxion Daily and Cambria Tail

-0.93

Correlation Coefficient

Direxion Daily  Cambria Tail

Pay attention - limited upside

The 3 months correlation between Direxion and Cambria is -0.93. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and Cambria Tail Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambria Tail Risk 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 NVDA are associated (or correlated) with Cambria Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambria Tail Risk has no effect on the direction of Direxion Daily i.e., Direxion Daily and Cambria Tail go up and down completely randomly.

Pair Corralation between Direxion Daily and Cambria Tail

Given the investment horizon of 90 days Direxion Daily NVDA is expected to generate 7.45 times more return on investment than Cambria Tail. However, Direxion Daily is 7.45 times more volatile than Cambria Tail Risk. It trades about 0.08 of its potential returns per unit of risk. Cambria Tail Risk is currently generating about -0.09 per unit of risk. If you would invest  9,347  in Direxion Daily NVDA on August 30, 2024 and sell it today you would earn a total of  1,787  from holding Direxion Daily NVDA or generate 19.12% return on investment over 90 days.

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

Direxion Daily NVDA  vs.  Cambria Tail Risk

Direxion Daily NVDA

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily NVDA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cambria Tail Risk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cambria Tail Risk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Cambria Tail is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Direxion Daily and Cambria Tail

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

The idea behind Direxion Daily NVDA and Cambria Tail Risk 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.