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

No risk reduction

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 2.96 times more volatile than ProShares Short 20. It trades about -0.03 of its total potential returns per unit of risk. ProShares Short 20 is currently generating about -0.02 per unit of volatility. If you would invest  2,410  in ProShares Short 20 on September 19, 2024 and sell it today you would lose (9.00) from holding ProShares Short 20 or give up 0.37% of portfolio value over 90 days.

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

Direxion Daily 20  vs.  ProShares Short 20

Direxion Daily 20

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily 20 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, Direxion Daily showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Short 20

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short 20 are ranked lower than 13 (%) 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..