Correlation Between Direxion Daily and ProShares Short

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

By analyzing existing cross correlation between Direxion Daily 20 and ProShares Short 20, you can compare the effects of market volatilities on Direxion Daily and ProShares Short 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 Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and ProShares Short.

Diversification Opportunities for Direxion Daily and ProShares Short

-1.0

Correlation Coefficient

Direxion Daily  ProShares Short

Pay attention - limited upside

The 3 months correlation between Direxion and ProShares is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily 20 and ProShares Short 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short 20 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 20 are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short 20 has no effect on the direction of Direxion Daily i.e., Direxion Daily and ProShares Short go up and down completely randomly.

Pair Corralation between Direxion Daily and ProShares Short

Considering the 90-day investment horizon Direxion Daily 20 is expected to under-perform the ProShares Short. In addition to that, Direxion Daily is 2.99 times more volatile than ProShares Short 20. It trades about -0.02 of its total potential returns per unit of risk. ProShares Short 20 is currently generating about 0.04 per unit of volatility. If you would invest  2,362  in ProShares Short 20 on September 27, 2024 and sell it today you would earn a total of  84.00  from holding ProShares Short 20 or generate 3.56% return on investment over 90 days.

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

Direxion Daily 20  vs.  ProShares Short 20

Direxion Daily 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily 20 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Etf's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

ProShares Short 20

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short 20 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, ProShares Short may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direxion Daily and ProShares Short

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

The idea behind Direxion Daily 20 and ProShares Short 20 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.