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 NVDA and First Trust Japan, 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

-0.33

Correlation Coefficient

Direxion Daily  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 Daily NVDA and First Trust Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Japan 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 NVDA 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 Japan 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 NVDA is expected to under-perform the First Trust. In addition to that, Direxion Daily is 3.88 times more volatile than First Trust Japan. It trades about -0.15 of its total potential returns per unit of risk. First Trust Japan is currently generating about 0.02 per unit of volatility. If you would invest  5,266  in First Trust Japan on September 12, 2024 and sell it today you would earn a total of  22.00  from holding First Trust Japan or generate 0.42% return on investment over 90 days.

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

Direxion Daily NVDA  vs.  First Trust Japan

Direxion Daily NVDA

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily NVDA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, Direxion Daily unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Japan

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, First Trust is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

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 NVDA and First Trust Japan 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.