Correlation Between Direxion Daily and American Beacon

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

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

Diversification Opportunities for Direxion Daily and American Beacon

0.84

Correlation Coefficient

Direxion Daily  American Beacon

Very poor diversification

The 3 months correlation between Direxion and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Industrials and American Beacon Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Select 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 Industrials are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Select has no effect on the direction of Direxion Daily i.e., Direxion Daily and American Beacon go up and down completely randomly.

Pair Corralation between Direxion Daily and American Beacon

Given the investment horizon of 90 days Direxion Daily Industrials is expected to generate 2.38 times more return on investment than American Beacon. However, Direxion Daily is 2.38 times more volatile than American Beacon Select. It trades about 0.07 of its potential returns per unit of risk. American Beacon Select is currently generating about 0.07 per unit of risk. If you would invest  5,338  in Direxion Daily Industrials on March 4, 2025 and sell it today you would earn a total of  854.00  from holding Direxion Daily Industrials or generate 16.0% return on investment over 90 days.

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

Direxion Daily Industrials  vs.  American Beacon Select

Direxion Daily Indus

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Industrials are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

American Beacon Select

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Select are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in July 2025.

Pair Trading with Direxion Daily and American Beacon

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

The idea behind Direxion Daily Industrials and American Beacon Select 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.