Correlation Between ProShares UltraShort and Direxion Daily

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

Diversification Opportunities for ProShares UltraShort and Direxion Daily

0.34

Correlation Coefficient

ProShares UltraShort  Direxion Daily

Weak diversification

The 3 months correlation between ProShares and Direxion is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Euro and Direxion Daily Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Semic 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 Euro 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 Semic has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Direxion Daily go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Direxion Daily

Considering the 90-day investment horizon ProShares UltraShort Euro is expected to generate 0.17 times more return on investment than Direxion Daily. However, ProShares UltraShort Euro is 5.88 times less risky than Direxion Daily. It trades about 0.22 of its potential returns per unit of risk. Direxion Daily Semiconductor is currently generating about -0.01 per unit of risk. If you would invest  2,987  in ProShares UltraShort Euro on September 15, 2024 and sell it today you would earn a total of  404.00  from holding ProShares UltraShort Euro or generate 13.53% return on investment over 90 days.

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

ProShares UltraShort Euro  vs.  Direxion Daily Semiconductor

ProShares UltraShort Euro

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Euro are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, ProShares UltraShort displayed solid returns over the last few months and may actually be approaching a breakup point.

Direxion Daily Semic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ProShares UltraShort and Direxion Daily

The main advantage of trading using opposite ProShares UltraShort and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort 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 UltraShort Euro and Direxion Daily Semiconductor 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..