Correlation Between Direxion Shares and First Trust
Can any of the company-specific risk be diversified away by investing in both Direxion Shares 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 Shares 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 Shares ETF and First Trust Developed, you can compare the effects of market volatilities on Direxion Shares 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 Shares with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Shares and First Trust.
Diversification Opportunities for Direxion Shares and First Trust
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Direxion and First is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Shares ETF and First Trust Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Developed and Direxion Shares 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 Shares ETF 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 Developed has no effect on the direction of Direxion Shares i.e., Direxion Shares and First Trust go up and down completely randomly.
Pair Corralation between Direxion Shares and First Trust
Assuming the 90 days trading horizon Direxion Shares ETF is expected to generate 2.34 times more return on investment than First Trust. However, Direxion Shares is 2.34 times more volatile than First Trust Developed. It trades about 0.02 of its potential returns per unit of risk. First Trust Developed is currently generating about -0.04 per unit of risk. If you would invest 57,394 in Direxion Shares ETF on September 3, 2024 and sell it today you would earn a total of 5,306 from holding Direxion Shares ETF or generate 9.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Direxion Shares ETF vs. First Trust Developed
Performance |
| Timeline |
| Direxion Shares ETF |
| First Trust Developed |
Direxion Shares and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direxion Shares and First Trust
The main advantage of trading using opposite Direxion Shares and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Shares 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 Shares vs. Direxion Shares ETF | Direxion Shares vs. Direxion Shares ETF | Direxion Shares vs. Direxion Shares ETF | Direxion Shares vs. iShares Trust |
| First Trust vs. Vanguard Index Funds | First Trust vs. Vanguard Index Funds | First Trust vs. Vanguard STAR Funds | First Trust vs. SPDR SP 500 |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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