Correlation Between Direxion Daily and Franklin Liberty

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Can any of the company-specific risk be diversified away by investing in both Direxion Daily and Franklin Liberty 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 Franklin Liberty 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 Franklin Liberty Short, you can compare the effects of market volatilities on Direxion Daily and Franklin Liberty 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 Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Franklin Liberty.

Diversification Opportunities for Direxion Daily and Franklin Liberty

DirexionFranklinDiversified AwayDirexionFranklinDiversified Away100%
-0.48
  Correlation Coefficient

Very good diversification

The 3 months correlation between Direxion and Franklin is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily NVDA and Franklin Liberty Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Short 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 Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Short has no effect on the direction of Direxion Daily i.e., Direxion Daily and Franklin Liberty go up and down completely randomly.

Pair Corralation between Direxion Daily and Franklin Liberty

Given the investment horizon of 90 days Direxion Daily NVDA is expected to generate 75.43 times more return on investment than Franklin Liberty. However, Direxion Daily is 75.43 times more volatile than Franklin Liberty Short. It trades about 0.06 of its potential returns per unit of risk. Franklin Liberty Short is currently generating about 0.23 per unit of risk. If you would invest  5,919  in Direxion Daily NVDA on November 21, 2024 and sell it today you would earn a total of  3,213  from holding Direxion Daily NVDA or generate 54.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Direxion Daily NVDA  vs.  Franklin Liberty Short

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -20-1001020
JavaScript chart by amCharts 3.21.15NVDU FTSD
       Timeline  
Direxion Daily NVDA 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Direxion Daily NVDA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb708090100110120
Franklin Liberty Short 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Short are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Franklin Liberty is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb8989.59090.59191.59292.59393.5

Direxion Daily and Franklin Liberty Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-11.51-8.62-5.73-2.840.02.795.648.4811.32 51015202530
JavaScript chart by amCharts 3.21.15NVDU FTSD
       Returns  

Pair Trading with Direxion Daily and Franklin Liberty

The main advantage of trading using opposite Direxion Daily and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, Franklin Liberty 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 Franklin Liberty will offset losses from the drop in Franklin Liberty's long position.
The idea behind Direxion Daily NVDA and Franklin Liberty Short 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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