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 Bloomberg and Direxion Daily Energy, 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

-0.47

Correlation Coefficient

ProShares UltraShort  Direxion Daily

Very good diversification

The 3 months correlation between ProShares and Direxion is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Bloomberg and Direxion Daily Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Energy 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 Bloomberg 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 Energy 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 is expected to generate 4.33 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, ProShares UltraShort Bloomberg is 1.08 times less risky than Direxion Daily. It trades about 0.03 of its potential returns per unit of risk. Direxion Daily Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,384  in Direxion Daily Energy on December 30, 2024 and sell it today you would earn a total of  993.00  from holding Direxion Daily Energy or generate 18.44% return on investment over 90 days.

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

ProShares UltraShort Bloomberg  vs.  Direxion Daily Energy

ProShares UltraShort

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Bloomberg are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Direxion Daily Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Direxion Daily showed solid returns over the last few months and may actually be approaching a breakup point.

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 Bloomberg and Direxion Daily Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.