Correlation Between Direxion Shares and ProShares Ultra

Can any of the company-specific risk be diversified away by investing in both Direxion Shares 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 Shares 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 Shares ETF and ProShares Ultra SP500, you can compare the effects of market volatilities on Direxion Shares 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 Shares with a short position of ProShares Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Shares and ProShares Ultra.

Diversification Opportunities for Direxion Shares and ProShares Ultra

0.8

Correlation Coefficient

Direxion Shares  ProShares Ultra

Very poor diversification

The 3 months correlation between Direxion and ProShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Shares ETF and ProShares Ultra SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra SP500 and Direxion Shares 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 Shares ETF 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 SP500 has no effect on the direction of Direxion Shares i.e., Direxion Shares and ProShares Ultra go up and down completely randomly.

Pair Corralation between Direxion Shares and ProShares Ultra

Given the investment horizon of 90 days Direxion Shares ETF is expected to generate 6.95 times more return on investment than ProShares Ultra. However, Direxion Shares is 6.95 times more volatile than ProShares Ultra SP500. It trades about 0.21 of its potential returns per unit of risk. ProShares Ultra SP500 is currently generating about 0.17 per unit of risk. If you would invest  1,082  in Direxion Shares ETF on September 12, 2024 and sell it today you would earn a total of  1,777  from holding Direxion Shares ETF or generate 164.23% return on investment over 90 days.

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

Direxion Shares ETF  vs.  ProShares Ultra SP500

Direxion Shares ETF

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Shares ETF are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Direxion Shares disclosed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Ultra SP500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra SP500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, ProShares Ultra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direxion Shares and ProShares Ultra

The main advantage of trading using opposite Direxion Shares and ProShares Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Shares 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 Shares ETF and ProShares Ultra SP500 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.