Correlation Between ProShares Ultra and Direxion Daily

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

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

Diversification Opportunities for ProShares Ultra and Direxion Daily

0.62

Correlation Coefficient

ProShares Ultra  Direxion Daily

Poor diversification

The 3 months correlation between ProShares and Direxion is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Health and Direxion Daily SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP500 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 Health are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily SP500 has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Direxion Daily go up and down completely randomly.

Pair Corralation between ProShares Ultra and Direxion Daily

Considering the 90-day investment horizon ProShares Ultra Health is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, ProShares Ultra Health is 1.52 times less risky than Direxion Daily. The etf trades about -0.17 of its potential returns per unit of risk. The Direxion Daily SP500 is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  12,315  in Direxion Daily SP500 on January 24, 2024 and sell it today you would lose (364.00) from holding Direxion Daily SP500 or give up 2.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

ProShares Ultra Health  vs.  Direxion Daily SP500

ProShares Ultra Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Ultra Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, ProShares Ultra is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Direxion Daily SP500

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with ProShares Ultra and Direxion Daily

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

The idea behind ProShares Ultra Health and Direxion Daily 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.