Correlation Between IShares MSCI and Direxion Daily

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

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

Diversification Opportunities for IShares MSCI and Direxion Daily

-0.9

Correlation Coefficient

IShares MSCI  Direxion Daily

Pay attention - limited upside

The 3 months correlation between IShares and Direxion is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and Direxion Daily Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Financial and IShares MSCI 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 iShares MSCI Europe 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 Financial has no effect on the direction of IShares MSCI i.e., IShares MSCI and Direxion Daily go up and down completely randomly.

Pair Corralation between IShares MSCI and Direxion Daily

Given the investment horizon of 90 days iShares MSCI Europe is expected to generate 0.37 times more return on investment than Direxion Daily. However, iShares MSCI Europe is 2.7 times less risky than Direxion Daily. It trades about 0.14 of its potential returns per unit of risk. Direxion Daily Financial is currently generating about -0.09 per unit of risk. If you would invest  2,977  in iShares MSCI Europe on May 6, 2025 and sell it today you would earn a total of  255.50  from holding iShares MSCI Europe or generate 8.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

iShares MSCI Europe  vs.  Direxion Daily Financial

iShares MSCI Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Direxion Daily Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in September 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with IShares MSCI and Direxion Daily

The main advantage of trading using opposite IShares MSCI and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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 iShares MSCI Europe and Direxion Daily Financial 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.