Correlation Between Direxion Daily and WisdomTree Corporate

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

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

Diversification Opportunities for Direxion Daily and WisdomTree Corporate

0.81

Correlation Coefficient

Direxion Daily  WisdomTree Corporate

Very poor diversification

The 3 months correlation between Direxion and WisdomTree is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and WisdomTree Corporate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Corporate Bond 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 Dow are associated (or correlated) with WisdomTree Corporate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Corporate Bond has no effect on the direction of Direxion Daily i.e., Direxion Daily and WisdomTree Corporate go up and down completely randomly.

Pair Corralation between Direxion Daily and WisdomTree Corporate

If you would invest  1,649  in Direxion Daily Dow on September 15, 2024 and sell it today you would earn a total of  1,434  from holding Direxion Daily Dow or generate 86.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	1.56%
Values	Daily Returns

Direxion Daily Dow  vs.  WisdomTree Corporate Bond

Direxion Daily Dow

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Dow are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Corporate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Corporate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, WisdomTree Corporate is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Direxion Daily and WisdomTree Corporate

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

The idea behind Direxion Daily Dow and WisdomTree Corporate Bond 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.