Correlation Between Direxion Daily and ETRACS 2x

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and ETRACS 2x 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 ETRACS 2x into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Direxion Daily Technology and ETRACS 2x Leveraged, you can compare the effects of market volatilities on Direxion Daily and ETRACS 2x 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 ETRACS 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and ETRACS 2x.

Diversification Opportunities for Direxion Daily and ETRACS 2x

0.84

Correlation Coefficient

Direxion Daily  ETRACS 2x

Very poor diversification

The 3 months correlation between Direxion and ETRACS is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Technology and ETRACS 2x Leveraged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS 2x Leveraged 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 Technology are associated (or correlated) with ETRACS 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS 2x Leveraged has no effect on the direction of Direxion Daily i.e., Direxion Daily and ETRACS 2x go up and down completely randomly.

Pair Corralation between Direxion Daily and ETRACS 2x

Given the investment horizon of 90 days Direxion Daily Technology is expected to generate 3.01 times more return on investment than ETRACS 2x. However, Direxion Daily is 3.01 times more volatile than ETRACS 2x Leveraged. It trades about 0.05 of its potential returns per unit of risk. ETRACS 2x Leveraged is currently generating about 0.13 per unit of risk. If you would invest  8,327  in Direxion Daily Technology on August 30, 2024 and sell it today you would earn a total of  781.00  from holding Direxion Daily Technology or generate 9.38% return on investment over 90 days.

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

Direxion Daily Technology  vs.  ETRACS 2x Leveraged

Direxion Daily Technology

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

ETRACS 2x Leveraged

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS 2x Leveraged are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental indicators, ETRACS 2x may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Direxion Daily and ETRACS 2x

The main advantage of trading using opposite Direxion Daily and ETRACS 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, ETRACS 2x 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 ETRACS 2x will offset losses from the drop in ETRACS 2x's long position.

The idea behind Direxion Daily Technology and ETRACS 2x Leveraged 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.