Correlation Between MicroSectors Big and Direxion Daily

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

By analyzing existing cross correlation between MicroSectors Big Oil and Direxion Daily Mid, you can compare the effects of market volatilities on MicroSectors Big 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 MicroSectors Big with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Big and Direxion Daily.

Diversification Opportunities for MicroSectors Big and Direxion Daily

0.62

Correlation Coefficient

MicroSectors Big  Direxion Daily

Poor diversification

The 3 months correlation between MicroSectors and Direxion is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Big Oil and Direxion Daily Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Mid and MicroSectors Big 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 MicroSectors Big Oil 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 Mid has no effect on the direction of MicroSectors Big i.e., MicroSectors Big and Direxion Daily go up and down completely randomly.

Pair Corralation between MicroSectors Big and Direxion Daily

Given the investment horizon of 90 days MicroSectors Big Oil is expected to generate 1.02 times more return on investment than Direxion Daily. However, MicroSectors Big is 1.02 times more volatile than Direxion Daily Mid. It trades about 0.08 of its potential returns per unit of risk. Direxion Daily Mid is currently generating about -0.25 per unit of risk. If you would invest  61,577  in MicroSectors Big Oil on January 29, 2024 and sell it today you would earn a total of  2,424  from holding MicroSectors Big Oil or generate 3.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

MicroSectors Big Oil  vs.  Direxion Daily Mid

MicroSectors Big Oil

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Big Oil are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, MicroSectors Big unveiled solid returns over the last few months and may actually be approaching a breakup point.

Direxion Daily Mid

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Mid are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with MicroSectors Big and Direxion Daily

The main advantage of trading using opposite MicroSectors Big and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Big 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 MicroSectors Big Oil and Direxion Daily Mid 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.