Correlation Between Direxion Daily and WisdomTree SmallCap

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

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

Diversification Opportunities for Direxion Daily and WisdomTree SmallCap

0.96

Correlation Coefficient

Direxion Daily  WisdomTree SmallCap

Almost no diversification

The 3 months correlation between Direxion and WisdomTree is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Technology and WisdomTree SmallCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 Technology are associated (or correlated) with WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of Direxion Daily i.e., Direxion Daily and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Direxion Daily and WisdomTree SmallCap

Given the investment horizon of 90 days Direxion Daily Technology is expected to generate 2.51 times more return on investment than WisdomTree SmallCap. However, Direxion Daily is 2.51 times more volatile than WisdomTree SmallCap Earnings. It trades about 0.36 of its potential returns per unit of risk. WisdomTree SmallCap Earnings is currently generating about 0.18 per unit of risk. If you would invest  5,505  in Direxion Daily Technology on April 30, 2025 and sell it today you would earn a total of  4,983  from holding Direxion Daily Technology or generate 90.52% 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 Technology  vs.  WisdomTree SmallCap Earnings

Direxion Daily Technology

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Technology are ranked lower than 28 (%) 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.

WisdomTree SmallCap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, WisdomTree SmallCap unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and WisdomTree SmallCap

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

The idea behind Direxion Daily Technology and WisdomTree SmallCap Earnings 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.