Correlation Between Direxion Daily and DOW

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

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

Diversification Opportunities for Direxion Daily and DOW

  Correlation Coefficient
Direxion Daily SP

No risk reduction

The 3 months correlation between Direxion and DOW is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP 500 Bull 3X and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW 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 SP are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Direxion Daily i.e. Direxion Daily and DOW go up and down completely randomly.

Pair Corralation between Direxion Daily and DOW

Given the investment horizon of 30 days, Direxion Daily SP is expected to generate 2.84 times more return on investment than DOW. However, Direxion Daily is 2.84 times more volatile than DOW. It trades about 0.14 of its potential returns per unit of risk. DOW is currently generating about 0.09 per unit of risk. If you would invest  3,109  in Direxion Daily SP on June 10, 2020 and sell it today you would earn a total of  1,308  from holding Direxion Daily SP or generate 42.07% return on investment over 30 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
ValuesDaily Returns

Direxion Daily SP 500 Bull 3X  vs.  DOW

 Performance (%) 
 Predicted Return Density 
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