Correlation Between ProShares UltraShort and Direxion Shares

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

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

Diversification Opportunities for ProShares UltraShort and Direxion Shares

0.19

Correlation Coefficient

ProShares UltraShort  Direxion Shares

Average diversification

The 3 months correlation between ProShares and Direxion is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort MSCI and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF 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 MSCI are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Direxion Shares go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Direxion Shares

Considering the 90-day investment horizon ProShares UltraShort MSCI is expected to generate 1.25 times more return on investment than Direxion Shares. However, ProShares UltraShort is 1.25 times more volatile than Direxion Shares ETF. It trades about 0.0 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.0 per unit of risk. If you would invest  1,662  in ProShares UltraShort MSCI on December 2, 2024 and sell it today you would lose (17.00) from holding ProShares UltraShort MSCI or give up 1.02% of portfolio value over 90 days.

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

ProShares UltraShort MSCI  vs.  Direxion Shares ETF

ProShares UltraShort MSCI

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares UltraShort MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Direxion Shares ETF

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ProShares UltraShort and Direxion Shares

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

The idea behind ProShares UltraShort MSCI and Direxion Shares ETF 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.