Correlation Between ProShares Ultra and Direxion Daily

Can any of the company-specific risk be diversified away by investing in both ProShares Ultra 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 Ultra 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 Ultra 20 and Direxion Daily 20, you can compare the effects of market volatilities on ProShares Ultra 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 Ultra with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and Direxion Daily.

Diversification Opportunities for ProShares Ultra and Direxion Daily

-1.0

Correlation Coefficient

ProShares Ultra  Direxion Daily

Pay attention - limited upside

The 3 months correlation between ProShares and Direxion is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra 20 and Direxion Daily 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily 20 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 20 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 20 has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Direxion Daily go up and down completely randomly.

Pair Corralation between ProShares Ultra and Direxion Daily

Considering the 90-day investment horizon ProShares Ultra 20 is expected to generate 0.69 times more return on investment than Direxion Daily. However, ProShares Ultra 20 is 1.45 times less risky than Direxion Daily. It trades about 0.06 of its potential returns per unit of risk. Direxion Daily 20 is currently generating about -0.04 per unit of risk. If you would invest  1,692  in ProShares Ultra 20 on December 29, 2024 and sell it today you would earn a total of  94.00  from holding ProShares Ultra 20 or generate 5.56% return on investment over 90 days.

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

ProShares Ultra 20  vs.  Direxion Daily 20

ProShares Ultra 20

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra 20 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, ProShares Ultra may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Direxion Daily 20

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable primary indicators, Direxion Daily is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ProShares Ultra and Direxion Daily

The main advantage of trading using opposite ProShares Ultra and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares Ultra 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 Ultra 20 and Direxion Daily 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.