Correlation Between MicroSectors FANG and Direxion Daily

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

Diversification Opportunities for MicroSectors FANG and Direxion Daily

-0.31

Correlation Coefficient

MicroSectors FANG  Direxion Daily

Very good diversification

The 3 months correlation between MicroSectors and Direxion is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Direxion Daily MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily MSCI and MicroSectors FANG 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 FANG Index 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 MSCI has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Direxion Daily go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Direxion Daily

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, MicroSectors FANG Index is 5.37 times less risky than Direxion Daily. The etf trades about -0.09 of its potential returns per unit of risk. The Direxion Daily MSCI is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,244  in Direxion Daily MSCI on May 3, 2025 and sell it today you would earn a total of  600.00  from holding Direxion Daily MSCI or generate 18.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	20.97%
Values	Daily Returns

MicroSectors FANG Index  vs.  Direxion Daily MSCI

MicroSectors FANG Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Direxion Daily MSCI

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily MSCI are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Direxion Daily exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MicroSectors FANG and Direxion Daily

The main advantage of trading using opposite MicroSectors FANG and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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 FANG Index and Direxion Daily MSCI 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.