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 Exchange Traded and Direxion Daily Regional, 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

-0.56

Correlation Coefficient

First Trust  Direxion Daily

Excellent diversification

The 3 months correlation between First and Direxion is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Direxion Daily Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Regional 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 Exchange Traded 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 Regional 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 Exchange Traded is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Exchange Traded is 9.27 times less risky than Direxion Daily. The etf trades about -0.01 of its potential returns per unit of risk. The Direxion Daily Regional is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  10,630  in Direxion Daily Regional on August 30, 2024 and sell it today you would earn a total of  5,189  from holding Direxion Daily Regional or generate 48.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

First Trust Exchange Traded  vs.  Direxion Daily Regional

First Trust Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Direxion Daily Regional

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Regional are ranked lower than 9 (%) 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 Exchange Traded and Direxion Daily Regional 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.