Correlation Between Direxion Daily and ProShares UltraShort

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

Diversification Opportunities for Direxion Daily and ProShares UltraShort

0.63

Correlation Coefficient

Direxion Daily  ProShares UltraShort

Poor diversification

The 3 months correlation between Direxion and ProShares is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and ProShares UltraShort Basic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of Direxion Daily i.e., Direxion Daily and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Direxion Daily and ProShares UltraShort

Given the investment horizon of 90 days Direxion Daily SP is expected to generate 2.62 times more return on investment than ProShares UltraShort. However, Direxion Daily is 2.62 times more volatile than ProShares UltraShort Basic. It trades about 0.09 of its potential returns per unit of risk. ProShares UltraShort Basic is currently generating about 0.2 per unit of risk. If you would invest  574.00  in Direxion Daily SP on September 22, 2024 and sell it today you would earn a total of  136.00  from holding Direxion Daily SP or generate 23.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Direxion Daily SP  vs.  ProShares UltraShort Basic

Direxion Daily SP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Direxion Daily exhibited solid returns over the last few months and may actually be approaching a breakup point.

ProShares UltraShort

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Basic are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, ProShares UltraShort displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and ProShares UltraShort

The main advantage of trading using opposite Direxion Daily and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, ProShares UltraShort 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 ProShares UltraShort will offset losses from the drop in ProShares UltraShort's long position.

The idea behind Direxion Daily SP and ProShares UltraShort Basic 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..