Correlation Between Direxion Daily and ProShares Ultra

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and ProShares Ultra 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 Ultra into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Direxion Daily SP500 and ProShares Ultra SmallCap600, you can compare the effects of market volatilities on Direxion Daily and ProShares Ultra 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 Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and ProShares Ultra.

Diversification Opportunities for Direxion Daily and ProShares Ultra

0.88

Correlation Coefficient

Direxion Daily  ProShares Ultra

Very poor diversification

The 3 months correlation between Direxion and ProShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP500 and ProShares Ultra SmallCap600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra Smal 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 SP500 are associated (or correlated) with ProShares Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra Smal has no effect on the direction of Direxion Daily i.e., Direxion Daily and ProShares Ultra go up and down completely randomly.

Pair Corralation between Direxion Daily and ProShares Ultra

Given the investment horizon of 90 days Direxion Daily SP500 is expected to generate 0.83 times more return on investment than ProShares Ultra. However, Direxion Daily SP500 is 1.2 times less risky than ProShares Ultra. It trades about 0.18 of its potential returns per unit of risk. ProShares Ultra SmallCap600 is currently generating about 0.14 per unit of risk. If you would invest  14,642  in Direxion Daily SP500 on September 2, 2024 and sell it today you would earn a total of  3,827  from holding Direxion Daily SP500 or generate 26.14% return on investment over 90 days.

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

Direxion Daily SP500  vs.  ProShares Ultra SmallCap600

Direxion Daily SP500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Direxion Daily disclosed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Ultra Smal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra SmallCap600 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, ProShares Ultra sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Daily and ProShares Ultra

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

The idea behind Direxion Daily SP500 and ProShares Ultra SmallCap600 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.