Correlation Between Vanguard Small and Direxion Daily

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

By analyzing existing cross correlation between Vanguard Small Cap Index and Direxion Daily Financial, you can compare the effects of market volatilities on Vanguard Small and Direxion 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 Vanguard Small with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Direxion Daily.

Diversification Opportunities for Vanguard Small and Direxion Daily

-0.94

Correlation Coefficient

Vanguard Small  Direxion Daily

Pay attention - limited upside

The 3 months correlation between Vanguard and Direxion is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Direxion Daily Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Financial and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily Financial has no effect on the direction of Vanguard Small i.e., Vanguard Small and Direxion Daily go up and down completely randomly.

Pair Corralation between Vanguard Small and Direxion Daily

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 0.3 times more return on investment than Direxion Daily. However, Vanguard Small Cap Index is 3.34 times less risky than Direxion Daily. It trades about 0.23 of its potential returns per unit of risk. Direxion Daily Financial is currently generating about -0.17 per unit of risk. If you would invest  22,672  in Vanguard Small Cap Index on September 3, 2024 and sell it today you would earn a total of  3,321  from holding Vanguard Small Cap Index or generate 14.65% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Direxion Daily Financial

Vanguard Small Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Vanguard Small sustained solid returns over the last few months and may actually be approaching a breakup point.

Direxion Daily Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with Vanguard Small and Direxion Daily

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

The idea behind Vanguard Small Cap Index and Direxion Daily Financial 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 Stocks Directory module to find actively traded stocks across global markets.