Correlation Between ProShares Ultra and Direxion Shares

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

By analyzing existing cross correlation between ProShares Ultra MSCI and Direxion Shares ETF, you can compare the effects of market volatilities on ProShares Ultra and Direxion Shares 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 Ultra with a short position of Direxion Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and Direxion Shares.

Diversification Opportunities for ProShares Ultra and Direxion Shares

0.5

Correlation Coefficient

ProShares Ultra  Direxion Shares

Very weak diversification

The 3 months correlation between ProShares and Direxion is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra MSCI and Direxion Shares ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Shares ETF and ProShares Ultra 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 Ultra MSCI are associated (or correlated) with Direxion Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Shares ETF has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Direxion Shares go up and down completely randomly.

Pair Corralation between ProShares Ultra and Direxion Shares

Considering the 90-day investment horizon ProShares Ultra MSCI is expected to generate 1.66 times more return on investment than Direxion Shares. However, ProShares Ultra is 1.66 times more volatile than Direxion Shares ETF. It trades about 0.15 of its potential returns per unit of risk. Direxion Shares ETF is currently generating about 0.14 per unit of risk. If you would invest  1,385  in ProShares Ultra MSCI on December 29, 2024 and sell it today you would earn a total of  386.00  from holding ProShares Ultra MSCI or generate 27.87% return on investment over 90 days.

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

ProShares Ultra MSCI  vs.  Direxion Shares ETF

ProShares Ultra MSCI

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra MSCI are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, ProShares Ultra reported solid returns over the last few months and may actually be approaching a breakup point.

Direxion Shares ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Shares ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Direxion Shares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Ultra and Direxion Shares

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

The idea behind ProShares Ultra MSCI and Direxion Shares ETF 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.