Correlation Between GM and Direxion Daily
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Direxion Daily into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Direxion Daily Junior, you can compare the effects of market volatilities on GM 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 GM with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Direxion Daily.
Diversification Opportunities for GM and Direxion Daily
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Direxion is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Direxion Daily Junior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Junior and GM 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 General Motors 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 Junior has no effect on the direction of GM i.e., GM and Direxion Daily go up and down completely randomly.
Pair Corralation between GM and Direxion Daily
Allowing for the 90-day total investment horizon GM is expected to generate 6.56 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, General Motors is 2.65 times less risky than Direxion Daily. It trades about 0.09 of its potential returns per unit of risk. Direxion Daily Junior is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 3,198 in Direxion Daily Junior on January 27, 2024 and sell it today you would earn a total of 659.00 from holding Direxion Daily Junior or generate 20.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. Direxion Daily Junior
Performance |
| Timeline |
| General Motors |
| Direxion Daily Junior |
GM and Direxion Daily Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Direxion Daily
The main advantage of trading using opposite GM and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Direxion Daily Junior 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.| Direxion Daily vs. ProShares UltraPro Dow30 | Direxion Daily vs. ProShares UltraPro Short | Direxion Daily vs. ProShares UltraPro QQQ | Direxion Daily vs. ProShares UltraPro Russell2000 |
Check out your portfolio center.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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
Other Complementary Tools
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities |