Correlation Between ProShares UltraShort and Direxion

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

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

Diversification Opportunities for ProShares UltraShort and Direxion

0.72

Correlation Coefficient

ProShares UltraShort  Direxion

Poor diversification

The 3 months correlation between ProShares and Direxion is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SP500 and Direxion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion and ProShares UltraShort 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 UltraShort SP500 are associated (or correlated) with Direxion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Direxion go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Direxion

Considering the 90-day investment horizon ProShares UltraShort SP500 is expected to under-perform the Direxion. In addition to that, ProShares UltraShort is 1.11 times more volatile than Direxion. It trades about -0.07 of its total potential returns per unit of risk. Direxion is currently generating about -0.08 per unit of volatility. If you would invest  2,233  in Direxion on February 1, 2024 and sell it today you would lose (294.00) from holding Direxion or give up 13.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	24.74%
Values	Daily Returns

ProShares UltraShort SP500  vs.  Direxion

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Direxion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Direxion is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ProShares UltraShort and Direxion

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

The idea behind ProShares UltraShort SP500 and Direxion 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.