Correlation Between Direxion and First Trust

Can any of the company-specific risk be diversified away by investing in both Direxion 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 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 and First Trust Nasdaq, you can compare the effects of market volatilities on Direxion 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 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion and First Trust.

Diversification Opportunities for Direxion and First Trust

-0.33

Correlation Coefficient

Direxion  First Trust

Very good diversification

The 3 months correlation between Direxion and First is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Direxion and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Direxion 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 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 Nasdaq has no effect on the direction of Direxion i.e., Direxion and First Trust go up and down completely randomly.

Pair Corralation between Direxion and First Trust

If you would invest  1,703  in First Trust Nasdaq on September 29, 2024 and sell it today you would earn a total of  30.00  from holding First Trust Nasdaq or generate 1.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Direxion  vs.  First Trust Nasdaq

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. Even with relatively invariable technical and fundamental indicators, Direxion is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

First Trust Nasdaq

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Nasdaq are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking signals, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Direxion and First Trust

The main advantage of trading using opposite Direxion and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion 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 and First Trust Nasdaq 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.