Correlation Between Direxion Daily and WisdomTree Emerging

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

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

Diversification Opportunities for Direxion Daily and WisdomTree Emerging

0.95

Correlation Coefficient

Direxion Daily  WisdomTree Emerging

Almost no diversification

The 3 months correlation between Direxion and WisdomTree is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Aerospace and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging 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 Aerospace are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of Direxion Daily i.e., Direxion Daily and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between Direxion Daily and WisdomTree Emerging

Given the investment horizon of 90 days Direxion Daily Aerospace is expected to generate 3.74 times more return on investment than WisdomTree Emerging. However, Direxion Daily is 3.74 times more volatile than WisdomTree Emerging Markets. It trades about 0.35 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.19 per unit of risk. If you would invest  3,326  in Direxion Daily Aerospace on May 2, 2025 and sell it today you would earn a total of  2,663  from holding Direxion Daily Aerospace or generate 80.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Direxion Daily Aerospace  vs.  WisdomTree Emerging Markets

Direxion Daily Aerospace

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Aerospace are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Direxion Daily displayed solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Emerging

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, WisdomTree Emerging may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Direxion Daily and WisdomTree Emerging

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

The idea behind Direxion Daily Aerospace and WisdomTree Emerging Markets 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.