Correlation Between Direxion Daily and Cambria Global

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

By analyzing existing cross correlation between Direxion Daily 20 and Cambria Global Asset, you can compare the effects of market volatilities on Direxion Daily and Cambria Global 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 Cambria Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Cambria Global.

Diversification Opportunities for Direxion Daily and Cambria Global

0.37

Correlation Coefficient

Direxion Daily  Cambria Global

Weak diversification

The 3 months correlation between Direxion and Cambria is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily 20 and Cambria Global Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambria Global Asset 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 20 are associated (or correlated) with Cambria Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambria Global Asset has no effect on the direction of Direxion Daily i.e., Direxion Daily and Cambria Global go up and down completely randomly.

Pair Corralation between Direxion Daily and Cambria Global

Considering the 90-day investment horizon Direxion Daily 20 is expected to generate 4.78 times more return on investment than Cambria Global. However, Direxion Daily is 4.78 times more volatile than Cambria Global Asset. It trades about 0.06 of its potential returns per unit of risk. Cambria Global Asset is currently generating about 0.09 per unit of risk. If you would invest  3,003  in Direxion Daily 20 on January 19, 2024 and sell it today you would earn a total of  1,010  from holding Direxion Daily 20 or generate 33.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.56%
Values	Daily Returns

Direxion Daily 20  vs.  Cambria Global Asset

Direxion Daily 20

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily 20 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain primary indicators, Direxion Daily showed solid returns over the last few months and may actually be approaching a breakup point.

Cambria Global Asset

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Global Asset are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cambria Global is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and Cambria Global

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

The idea behind Direxion Daily 20 and Cambria Global Asset 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.