Correlation Between IShares Global and Direxion Daily

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Can any of the company-specific risk be diversified away by investing in both IShares Global 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 IShares Global and Direxion Daily into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Global Industrials and Direxion Daily Industrials, you can compare the effects of market volatilities on IShares Global 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 IShares Global with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Global and Direxion Daily.

Diversification Opportunities for IShares Global and Direxion Daily

0.98
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and Direxion is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Industrials and Direxion Daily Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Indus and IShares Global 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 iShares Global Industrials 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 Indus has no effect on the direction of IShares Global i.e., IShares Global and Direxion Daily go up and down completely randomly.

Pair Corralation between IShares Global and Direxion Daily

Considering the 90-day investment horizon iShares Global Industrials is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, iShares Global Industrials is 3.34 times less risky than Direxion Daily. The etf trades about -0.04 of its potential returns per unit of risk. The Direxion Daily Industrials is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  5,137  in Direxion Daily Industrials on January 17, 2024 and sell it today you would lose (40.00) from holding Direxion Daily Industrials or give up 0.78% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy95.24%
ValuesDaily Returns

iShares Global Industrials  vs.  Direxion Daily Industrials

 Performance 
       Timeline  
iShares Global Indus 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Industrials are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in May 2024.
Direxion Daily Indus 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Industrials are ranked lower than 16 (%) 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.

IShares Global and Direxion Daily Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Global and Direxion Daily

The main advantage of trading using opposite IShares Global and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Global 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 iShares Global Industrials and Direxion Daily Industrials 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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