Correlation Between Direxion Daily and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Direxion Daily and SPDR SP 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 SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion Daily Mid and SPDR SP 400, you can compare the effects of market volatilities on Direxion Daily and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and SPDR SP.

Diversification Opportunities for Direxion Daily and SPDR SP

  Correlation Coefficient

Almost no diversification

The 3 months correlation between Direxion and SPDR is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Mid and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 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 Mid are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of Direxion Daily i.e., Direxion Daily and SPDR SP go up and down completely randomly.

Pair Corralation between Direxion Daily and SPDR SP

Given the investment horizon of 90 days Direxion Daily is expected to generate 3.22 times less return on investment than SPDR SP. In addition to that, Direxion Daily is 2.76 times more volatile than SPDR SP 400. It trades about 0.01 of its total potential returns per unit of risk. SPDR SP 400 is currently generating about 0.08 per unit of volatility. If you would invest  7,902  in SPDR SP 400 on January 20, 2024 and sell it today you would earn a total of  221.00  from holding SPDR SP 400 or generate 2.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
ValuesDaily Returns

Direxion Daily Mid  vs.  SPDR SP 400

Direxion Daily Mid 

Risk-Adjusted Performance

2 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Mid are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Direxion Daily is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
SPDR SP 400 

Risk-Adjusted Performance

8 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Direxion Daily and SPDR SP Volatility Contrast

   Predicted Return Density   

Pair Trading with Direxion Daily and SPDR SP

The main advantage of trading using opposite Direxion Daily and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.
The idea behind Direxion Daily Mid and SPDR SP 400 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 Stocks Directory module to find actively traded stocks across global markets.

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