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 Small, 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

0.72

Correlation Coefficient

ProShares Ultra  Direxion Daily

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 Ultra Health and Direxion Daily Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Small 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 Small 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 is expected to generate 1.14 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, ProShares Ultra Health is 2.39 times less risky than Direxion Daily. It trades about 0.01 of its potential returns per unit of risk. Direxion Daily Small is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,574  in Direxion Daily Small on January 20, 2024 and sell it today you would lose (1,301) from holding Direxion Daily Small or give up 28.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

ProShares Ultra Health  vs.  Direxion Daily Small

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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Direxion Daily Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Small has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

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 Small 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.