Correlation Between 3M and Direxion Daily

Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Direxion Daily into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and Direxion Daily Technology, you can compare the effects of market volatilities on 3M 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 3M with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Direxion Daily.

Diversification Opportunities for 3M and Direxion Daily

0.73

Correlation Coefficient

3M  Direxion Daily

Poor diversification

The 3 months correlation between 3M and Direxion is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Direxion Daily Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Technology and 3M 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 3M Company 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 Technology has no effect on the direction of 3M i.e., 3M and Direxion Daily go up and down completely randomly.

Pair Corralation between 3M and Direxion Daily

Considering the 90-day investment horizon 3M is expected to generate 13.71 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, 3M Company is 1.95 times less risky than Direxion Daily. It trades about 0.04 of its potential returns per unit of risk. Direxion Daily Technology is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  5,916  in Direxion Daily Technology on May 4, 2025 and sell it today you would earn a total of  3,743  from holding Direxion Daily Technology or generate 63.27% return on investment over 90 days.

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

3M Company  vs.  Direxion Daily Technology

3M Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Direxion Daily Technology

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Technology are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 3M and Direxion Daily

The main advantage of trading using opposite 3M and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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 3M Company and Direxion Daily Technology 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.