Correlation Between IShares Oil and Direxion Daily

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

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

Diversification Opportunities for IShares Oil and Direxion Daily

-0.7

Correlation Coefficient

IShares Oil  Direxion Daily

Excellent diversification

The 3 months correlation between IShares and Direxion is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares Oil Gas and Direxion Daily Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Pharm and IShares Oil 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 iShares Oil Gas 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 Pharm has no effect on the direction of IShares Oil i.e., IShares Oil and Direxion Daily go up and down completely randomly.

Pair Corralation between IShares Oil and Direxion Daily

Considering the 90-day investment horizon iShares Oil Gas is expected to generate 0.28 times more return on investment than Direxion Daily. However, iShares Oil Gas is 3.62 times less risky than Direxion Daily. It trades about 0.37 of its potential returns per unit of risk. Direxion Daily Pharmaceutical is currently generating about -0.29 per unit of risk. If you would invest  9,641  in iShares Oil Gas on January 31, 2024 and sell it today you would earn a total of  1,259  from holding iShares Oil Gas or generate 13.06% return on investment over 90 days.

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

iShares Oil Gas  vs.  Direxion Daily Pharmaceutical

iShares Oil Gas

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Oil Gas are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, IShares Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Direxion Daily Pharm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Etf's essential indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

Pair Trading with IShares Oil and Direxion Daily

The main advantage of trading using opposite IShares Oil and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Oil 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 iShares Oil Gas and Direxion Daily Pharmaceutical 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.