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 Regional and First Trust Dow, 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
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direxion and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Regional and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow 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 Regional 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 Dow 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 Regional is expected to generate 8.27 times more return on investment than First Trust. However, Direxion Daily is 8.27 times more volatile than First Trust Dow. It trades about 0.15 of its potential returns per unit of risk. First Trust Dow is currently generating about 0.15 per unit of risk. If you would invest 6,162 in Direxion Daily Regional on September 2, 2024 and sell it today you would earn a total of 9,482 from holding Direxion Daily Regional or generate 153.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direxion Daily Regional vs. First Trust Dow
Performance |
| Timeline |
| Direxion Daily Regional |
| First Trust Dow |
Direxion Daily and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
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.| Direxion Daily vs. Direxion Daily Homebuilders | Direxion Daily vs. Direxion Daily Retail | Direxion Daily vs. Direxion Daily Transportation | Direxion Daily vs. Direxion Daily Aerospace |
| First Trust vs. Invesco SP 100 | First Trust vs. First Trust Horizon | First Trust vs. Invesco Russell 1000 |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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