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 Small, 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

-0.94

Correlation Coefficient

First Trust  Direxion Daily

Pay attention - limited upside

The 3 months correlation between First and Direxion is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and Direxion Daily Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Small 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 Small 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 under-perform the Direxion Daily. In addition to that, First Trust is 1.18 times more volatile than Direxion Daily Small. It trades about -0.09 of its total potential returns per unit of risk. Direxion Daily Small is currently generating about 0.14 per unit of volatility. If you would invest  1,280  in Direxion Daily Small on December 29, 2024 and sell it today you would earn a total of  399.00  from holding Direxion Daily Small or generate 31.17% return on investment over 90 days.

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

First Trust SkyBridge  vs.  Direxion Daily Small

First Trust SkyBridge

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SkyBridge has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Direxion Daily Small

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Small are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Direxion Daily sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Small 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.