Correlation Between Direxion Daily and ProShares UltraPro

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

By analyzing existing cross correlation between Direxion Daily Small and ProShares UltraPro Russell2000, you can compare the effects of market volatilities on Direxion Daily and ProShares UltraPro 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 UltraPro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and ProShares UltraPro.

Diversification Opportunities for Direxion Daily and ProShares UltraPro

1.0

Correlation Coefficient

Direxion Daily  ProShares UltraPro

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 Small and ProShares UltraPro Russell2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraPro 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 Small are associated (or correlated) with ProShares UltraPro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraPro has no effect on the direction of Direxion Daily i.e., Direxion Daily and ProShares UltraPro go up and down completely randomly.

Pair Corralation between Direxion Daily and ProShares UltraPro

Considering the 90-day investment horizon Direxion Daily Small is expected to generate 0.99 times more return on investment than ProShares UltraPro. However, Direxion Daily Small is 1.01 times less risky than ProShares UltraPro. It trades about -0.34 of its potential returns per unit of risk. ProShares UltraPro Russell2000 is currently generating about -0.38 per unit of risk. If you would invest  5,602  in Direxion Daily Small on September 25, 2024 and sell it today you would lose (1,257) from holding Direxion Daily Small or give up 22.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Direxion Daily Small  vs.  ProShares UltraPro Russell2000

Direxion Daily Small

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Small are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ProShares UltraPro

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraPro Russell2000 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, ProShares UltraPro is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and ProShares UltraPro

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

The idea behind Direxion Daily Small and ProShares UltraPro Russell2000 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.