Correlation Between Direxion Daily and First Trust

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

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

Diversification Opportunities for Direxion Daily and First Trust

-0.41

Correlation Coefficient

Direxion Daily  First Trust

Very good diversification

The 3 months correlation between Direxion and First is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Homebuilders and First Trust Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Consumer 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 Homebuilders are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Consumer has no effect on the direction of Direxion Daily i.e., Direxion Daily and First Trust go up and down completely randomly.

Pair Corralation between Direxion Daily and First Trust

Given the investment horizon of 90 days Direxion Daily Homebuilders is expected to generate 4.16 times more return on investment than First Trust. However, Direxion Daily is 4.16 times more volatile than First Trust Consumer. It trades about 0.06 of its potential returns per unit of risk. First Trust Consumer is currently generating about 0.06 per unit of risk. If you would invest  3,329  in Direxion Daily Homebuilders on September 26, 2024 and sell it today you would earn a total of  5,517  from holding Direxion Daily Homebuilders or generate 165.73% return on investment over 90 days.

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

Direxion Daily Homebuilders  vs.  First Trust Consumer

Direxion Daily Homeb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Homebuilders has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Etf's forward indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

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.

Pair Trading with Direxion Daily and First Trust

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

The idea behind Direxion Daily Homebuilders and First Trust Consumer 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.