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 SP and ProShares Ultra Basic, 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

0.24

Correlation Coefficient

Direxion Daily  ProShares Ultra

Modest diversification

The 3 months correlation between Direxion and ProShares is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and ProShares Ultra Basic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra Basic 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 SP 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 Basic 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 SP is expected to under-perform the ProShares Ultra. In addition to that, Direxion Daily is 2.19 times more volatile than ProShares Ultra Basic. It trades about -0.08 of its total potential returns per unit of risk. ProShares Ultra Basic is currently generating about 0.03 per unit of volatility. If you would invest  2,262  in ProShares Ultra Basic on December 29, 2024 and sell it today you would earn a total of  42.00  from holding ProShares Ultra Basic or generate 1.86% return on investment over 90 days.

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

Direxion Daily SP  vs.  ProShares Ultra Basic

Direxion Daily SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's fundamental drivers remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

ProShares Ultra Basic

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Basic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, ProShares Ultra is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 SP and ProShares Ultra Basic 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.