Correlation Between Direxion Daily and Davidstea

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and Davidstea 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 Davidstea 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 Davidstea, you can compare the effects of market volatilities on Direxion Daily and Davidstea 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 Davidstea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Davidstea.

Diversification Opportunities for Direxion Daily and Davidstea

0.3

Correlation Coefficient

Direxion Daily  Davidstea

Weak diversification

The 3 months correlation between Direxion and Davidstea is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily 20 and Davidstea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davidstea 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 Davidstea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davidstea has no effect on the direction of Direxion Daily i.e., Direxion Daily and Davidstea go up and down completely randomly.

Pair Corralation between Direxion Daily and Davidstea

Considering the 90-day investment horizon Direxion Daily 20 is expected to generate 0.56 times more return on investment than Davidstea. However, Direxion Daily 20 is 1.8 times less risky than Davidstea. It trades about -0.05 of its potential returns per unit of risk. Davidstea is currently generating about -0.06 per unit of risk. If you would invest  13,492  in Direxion Daily 20 on January 24, 2024 and sell it today you would lose (8,972) from holding Direxion Daily 20 or give up 66.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	57.86%
Values	Daily Returns

Direxion Daily 20  vs.  Davidstea

Direxion Daily 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily 20 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Etf's primary indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Davidstea

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davidstea has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Davidstea is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and Davidstea

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

The idea behind Direxion Daily 20 and Davidstea 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.