Correlation Between Direxion Daily and Roundhill Daily

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

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

Diversification Opportunities for Direxion Daily and Roundhill Daily

0.76

Correlation Coefficient

Direxion Daily  Roundhill Daily

Poor diversification

The 3 months correlation between Direxion and Roundhill is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and Roundhill Daily Inverse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roundhill Daily Inverse 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 SP are associated (or correlated) with Roundhill Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roundhill Daily Inverse has no effect on the direction of Direxion Daily i.e., Direxion Daily and Roundhill Daily go up and down completely randomly.

Pair Corralation between Direxion Daily and Roundhill Daily

Given the investment horizon of 90 days Direxion Daily SP is expected to under-perform the Roundhill Daily. In addition to that, Direxion Daily is 1.33 times more volatile than Roundhill Daily Inverse. It trades about -0.1 of its total potential returns per unit of risk. Roundhill Daily Inverse is currently generating about -0.11 per unit of volatility. If you would invest  2,144  in Roundhill Daily Inverse on August 30, 2024 and sell it today you would lose (254.00) from holding Roundhill Daily Inverse or give up 11.85% of portfolio value over 90 days.

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

Direxion Daily SP  vs.  Roundhill Daily Inverse

Direxion Daily SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Roundhill Daily Inverse

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roundhill Daily Inverse has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Etf's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with Direxion Daily and Roundhill Daily

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

The idea behind Direxion Daily SP and Roundhill Daily Inverse 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.