Correlation Between ProShares Short and Direxion Daily

Can any of the company-specific risk be diversified away by investing in both ProShares Short 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 Short 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 Short MidCap400 and Direxion Daily Small, you can compare the effects of market volatilities on ProShares Short 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 Short with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Short and Direxion Daily.

Diversification Opportunities for ProShares Short and Direxion Daily

-0.91

Correlation Coefficient

ProShares Short  Direxion Daily

Pay attention - limited upside

The 3 months correlation between ProShares and Direxion is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Short MidCap400 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 Short 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 Short MidCap400 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 Short i.e., ProShares Short and Direxion Daily go up and down completely randomly.

Pair Corralation between ProShares Short and Direxion Daily

Considering the 90-day investment horizon ProShares Short MidCap400 is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, ProShares Short MidCap400 is 3.82 times less risky than Direxion Daily. The etf trades about -0.01 of its potential returns per unit of risk. The Direxion Daily Small is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,200  in Direxion Daily Small on October 8, 2024 and sell it today you would earn a total of  304.00  from holding Direxion Daily Small or generate 7.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

ProShares Short MidCap400  vs.  Direxion Daily Small

ProShares Short MidCap400

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Short MidCap400 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ProShares Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Direxion Daily Small

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Small are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ProShares Short and Direxion Daily

The main advantage of trading using opposite ProShares Short and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares Short 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 Short MidCap400 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.