Correlation Between Dow 2x and First Trust

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Can any of the company-specific risk be diversified away by investing in both Dow 2x 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 Dow 2x and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow 2x Strategy and First Trust Intermediate, you can compare the effects of market volatilities on Dow 2x 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 Dow 2x with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow 2x and First Trust.

Diversification Opportunities for Dow 2x and First Trust

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Dow and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Dow 2x Strategy and First Trust Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Intermediate and Dow 2x 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 Dow 2x Strategy 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 Intermediate has no effect on the direction of Dow 2x i.e., Dow 2x and First Trust go up and down completely randomly.

Pair Corralation between Dow 2x and First Trust

Assuming the 90 days horizon Dow 2x Strategy is expected to generate 3.45 times more return on investment than First Trust. However, Dow 2x is 3.45 times more volatile than First Trust Intermediate. It trades about 0.22 of its potential returns per unit of risk. First Trust Intermediate is currently generating about 0.37 per unit of risk. If you would invest  14,413  in Dow 2x Strategy on April 24, 2025 and sell it today you would earn a total of  3,125  from holding Dow 2x Strategy or generate 21.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Dow 2x Strategy  vs.  First Trust Intermediate

 Performance 
       Timeline  
Dow 2x Strategy 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Dow 2x Strategy are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dow 2x showed solid returns over the last few months and may actually be approaching a breakup point.
First Trust Intermediate 

Risk-Adjusted Performance

Strong

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Intermediate are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly fragile basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Dow 2x and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dow 2x and First Trust

The main advantage of trading using opposite Dow 2x and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 2x 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 Dow 2x Strategy and First Trust Intermediate 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.
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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