Correlation Between First Trust and Direxion

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

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

Diversification Opportunities for First Trust and Direxion

0.61

Correlation Coefficient

First Trust  Direxion

Poor diversification

The 3 months correlation between First and Direxion is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Direxion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion 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 NASDAQ are associated (or correlated) with Direxion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion has no effect on the direction of First Trust i.e., First Trust and Direxion go up and down completely randomly.

Pair Corralation between First Trust and Direxion

If you would invest  6,204  in First Trust NASDAQ on September 21, 2024 and sell it today you would earn a total of  200.00  from holding First Trust NASDAQ or generate 3.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	9.09%
Values	Daily Returns

First Trust NASDAQ  vs.  Direxion

First Trust NASDAQ

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Direxion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Direxion is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Direxion

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

The idea behind First Trust NASDAQ and Direxion 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.