Correlation Between Direxion Daily and ProShares Ultra

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

Diversification Opportunities for Direxion Daily and ProShares Ultra

0.08

Correlation Coefficient

Direxion Daily  ProShares Ultra

Significant diversification

The 3 months correlation between Direxion and ProShares is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Aerospace 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 Daily 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 Daily Aerospace 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 Daily i.e., Direxion Daily and ProShares Ultra go up and down completely randomly.

Pair Corralation between Direxion Daily and ProShares Ultra

Given the investment horizon of 90 days Direxion Daily is expected to generate 1.48 times less return on investment than ProShares Ultra. In addition to that, Direxion Daily is 2.51 times more volatile than ProShares Ultra SP500. It trades about 0.04 of its total potential returns per unit of risk. ProShares Ultra SP500 is currently generating about 0.14 per unit of volatility. If you would invest  8,769  in ProShares Ultra SP500 on October 1, 2024 and sell it today you would earn a total of  775.00  from holding ProShares Ultra SP500 or generate 8.84% return on investment over 90 days.

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

Direxion Daily Aerospace  vs.  ProShares Ultra SP500

Direxion Daily Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

ProShares Ultra SP500

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra SP500 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, ProShares Ultra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and ProShares Ultra

The main advantage of trading using opposite Direxion Daily and ProShares Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily 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 Daily Aerospace 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 Global Correlations module to find global opportunities by holding instruments from different markets.