Correlation Between Direxion Daily and IShares Russell

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

By analyzing existing cross correlation between Direxion Daily Dow and iShares Russell 2500, you can compare the effects of market volatilities on Direxion Daily and IShares Russell 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 IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and IShares Russell.

Diversification Opportunities for Direxion Daily and IShares Russell

-0.85

Correlation Coefficient

Direxion Daily  IShares Russell

Pay attention - limited upside

The 3 months correlation between Direxion and IShares is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and iShares Russell 2500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2500 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 Dow are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2500 has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares Russell go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares Russell

Given the investment horizon of 90 days Direxion Daily Dow is expected to generate 3.02 times more return on investment than IShares Russell. However, Direxion Daily is 3.02 times more volatile than iShares Russell 2500. It trades about 0.24 of its potential returns per unit of risk. iShares Russell 2500 is currently generating about -0.28 per unit of risk. If you would invest  614.00  in Direxion Daily Dow on January 20, 2024 and sell it today you would earn a total of  95.00  from holding Direxion Daily Dow or generate 15.47% return on investment over 90 days.

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

Direxion Daily Dow  vs.  iShares Russell 2500

Direxion Daily Dow

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Dow has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Direxion Daily is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Russell 2500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Russell 2500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, IShares Russell is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Direxion Daily and IShares Russell

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

The idea behind Direxion Daily Dow and iShares Russell 2500 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.