Correlation Between ProShares UltraPro and Direxion Daily

Can any of the company-specific risk be diversified away by investing in both ProShares UltraPro 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 UltraPro 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 UltraPro Russell2000 and Direxion Daily SP500, you can compare the effects of market volatilities on ProShares UltraPro 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 UltraPro with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraPro and Direxion Daily.

Diversification Opportunities for ProShares UltraPro and Direxion Daily

0.77

Correlation Coefficient

ProShares UltraPro  Direxion Daily

Poor diversification

The 3 months correlation between ProShares and Direxion is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraPro Russell2000 and Direxion Daily SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP500 and ProShares UltraPro 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 UltraPro Russell2000 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 SP500 has no effect on the direction of ProShares UltraPro i.e., ProShares UltraPro and Direxion Daily go up and down completely randomly.

Pair Corralation between ProShares UltraPro and Direxion Daily

Given the investment horizon of 90 days ProShares UltraPro is expected to generate 1.71 times less return on investment than Direxion Daily. In addition to that, ProShares UltraPro is 1.74 times more volatile than Direxion Daily SP500. It trades about 0.02 of its total potential returns per unit of risk. Direxion Daily SP500 is currently generating about 0.07 per unit of volatility. If you would invest  16,247  in Direxion Daily SP500 on September 26, 2024 and sell it today you would earn a total of  1,464  from holding Direxion Daily SP500 or generate 9.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

ProShares UltraPro Russell2000  vs.  Direxion Daily SP500

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.

Direxion Daily SP500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares UltraPro and Direxion Daily

The main advantage of trading using opposite ProShares UltraPro and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraPro 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 UltraPro Russell2000 and Direxion Daily SP500 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..