Correlation Between Direxion Daily and IShares MSCI

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

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

Diversification Opportunities for Direxion Daily and IShares MSCI

0.81

Correlation Coefficient

Direxion Daily  IShares MSCI

Very poor diversification

The 3 months correlation between Direxion and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Financial and iShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Europe 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 Financial are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Europe has no effect on the direction of Direxion Daily i.e., Direxion Daily and IShares MSCI go up and down completely randomly.

Pair Corralation between Direxion Daily and IShares MSCI

Considering the 90-day investment horizon Direxion Daily Financial is expected to generate 2.62 times more return on investment than IShares MSCI. However, Direxion Daily is 2.62 times more volatile than iShares MSCI Europe. It trades about 0.09 of its potential returns per unit of risk. iShares MSCI Europe is currently generating about 0.14 per unit of risk. If you would invest  14,178  in Direxion Daily Financial on May 6, 2025 and sell it today you would earn a total of  1,838  from holding Direxion Daily Financial or generate 12.96% return on investment over 90 days.

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

Direxion Daily Financial  vs.  iShares MSCI Europe

Direxion Daily Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares MSCI Europe

Risk-Adjusted Performance

Good

Over the last 90 days iShares MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Direxion Daily and IShares MSCI

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

The idea behind Direxion Daily Financial and iShares MSCI Europe 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.