Correlation Between First Trust and Direxion Daily

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

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

Diversification Opportunities for First Trust and Direxion Daily

-0.78

Correlation Coefficient

First Trust  Direxion Daily

Pay attention - limited upside

The 3 months correlation between First and Direxion is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and Direxion Daily SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP and First Trust 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 First Trust SkyBridge 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 SP has no effect on the direction of First Trust i.e., First Trust and Direxion Daily go up and down completely randomly.

Pair Corralation between First Trust and Direxion Daily

Given the investment horizon of 90 days First Trust SkyBridge is expected to generate 1.71 times more return on investment than Direxion Daily. However, First Trust is 1.71 times more volatile than Direxion Daily SP. It trades about 0.24 of its potential returns per unit of risk. Direxion Daily SP is currently generating about -0.1 per unit of risk. If you would invest  1,027  in First Trust SkyBridge on September 5, 2024 and sell it today you would earn a total of  1,017  from holding First Trust SkyBridge or generate 99.03% return on investment over 90 days.

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

First Trust SkyBridge  vs.  Direxion Daily SP

First Trust SkyBridge

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SkyBridge are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, First Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

Direxion Daily SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily SP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Etf's forward indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

Pair Trading with First Trust and Direxion Daily

The main advantage of trading using opposite First Trust and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust SkyBridge and Direxion Daily SP 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.