Correlation Between ProShares Ultra and Direxion Shares

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

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

Diversification Opportunities for ProShares Ultra and Direxion Shares

0.68

Correlation Coefficient

ProShares Ultra  Direxion Shares

Poor diversification

The 3 months correlation between ProShares and Direxion is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra SP500 and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF and ProShares Ultra 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 ProShares Ultra SP500 are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Direxion Shares go up and down completely randomly.

Pair Corralation between ProShares Ultra and Direxion Shares

Considering the 90-day investment horizon ProShares Ultra is expected to generate 1.94 times less return on investment than Direxion Shares. But when comparing it to its historical volatility, ProShares Ultra SP500 is 1.76 times less risky than Direxion Shares. It trades about 0.16 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,933  in Direxion Shares ETF on September 15, 2024 and sell it today you would earn a total of  816.00  from holding Direxion Shares ETF or generate 27.82% return on investment over 90 days.

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

ProShares Ultra SP500  vs.  Direxion Shares ETF

ProShares Ultra SP500

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra SP500 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, ProShares Ultra displayed solid returns over the last few months and may actually be approaching a breakup point.

Direxion Shares ETF

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Shares ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Direxion Shares unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Ultra and Direxion Shares

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

The idea behind ProShares Ultra SP500 and Direxion Shares ETF 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.