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 Consumer and Direxion Daily Cnsmr, 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

0.88

Correlation Coefficient

First Trust  Direxion Daily

Very poor diversification

The 3 months correlation between First and Direxion is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and Direxion Daily Cnsmr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Cnsmr 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 Consumer 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 Cnsmr 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

Considering the 90-day investment horizon First Trust is expected to generate 5.05 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, First Trust Consumer is 3.12 times less risky than Direxion Daily. It trades about 0.06 of its potential returns per unit of risk. Direxion Daily Cnsmr is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,574  in Direxion Daily Cnsmr on September 26, 2024 and sell it today you would earn a total of  4,661  from holding Direxion Daily Cnsmr or generate 296.12% return on investment over 90 days.

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

First Trust Consumer  vs.  Direxion Daily Cnsmr

First Trust Consumer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Direxion Daily Cnsmr

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Cnsmr are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Direxion Daily unveiled 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 Consumer and Direxion Daily Cnsmr 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.