Correlation Between VanEck China and Direxion Daily

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

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

Diversification Opportunities for VanEck China and Direxion Daily

0.03

Correlation Coefficient

VanEck China  Direxion Daily

Significant diversification

The 3 months correlation between VanEck and Direxion is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding VanEck China Bond and Direxion Daily Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Semic and VanEck China 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 VanEck China Bond 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 Semic has no effect on the direction of VanEck China i.e., VanEck China and Direxion Daily go up and down completely randomly.

Pair Corralation between VanEck China and Direxion Daily

Given the investment horizon of 90 days VanEck China Bond is expected to generate 0.04 times more return on investment than Direxion Daily. However, VanEck China Bond is 23.58 times less risky than Direxion Daily. It trades about 0.15 of its potential returns per unit of risk. Direxion Daily Semiconductor is currently generating about -0.11 per unit of risk. If you would invest  2,170  in VanEck China Bond on January 31, 2024 and sell it today you would earn a total of  17.00  from holding VanEck China Bond or generate 0.78% return on investment over 90 days.

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

VanEck China Bond  vs.  Direxion Daily Semiconductor

VanEck China Bond

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck China Bond are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, VanEck China is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Direxion Daily Semic

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Semiconductor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VanEck China and Direxion Daily

The main advantage of trading using opposite VanEck China and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck China 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 VanEck China Bond and Direxion Daily Semiconductor 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.