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 SP and First Trust Nasdaq, 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
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direxion and First is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP 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 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 SP 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 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 SP is expected to under-perform the First Trust. In addition to that, Direxion Daily is 4.32 times more volatile than First Trust Nasdaq. It trades about -0.01 of its total potential returns per unit of risk. First Trust Nasdaq is currently generating about -0.01 per unit of volatility. If you would invest 2,588 in First Trust Nasdaq on September 3, 2024 and sell it today you would lose (118.00) from holding First Trust Nasdaq or give up 4.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direxion Daily SP vs. First Trust Nasdaq
Performance |
| Timeline |
| Direxion Daily SP |
| First Trust Nasdaq |
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. Ultimus Managers Trust | Direxion Daily vs. American Beacon Select | Direxion Daily vs. Direxion Daily Regional | Direxion Daily vs. EA Series Trust |
| First Trust vs. Ultimus Managers Trust | First Trust vs. American Beacon Select | First Trust vs. Direxion Daily Regional | First Trust vs. Direxion Daily SP |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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