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 Financials and Direxion Daily Aerospace, 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

0.13

Correlation Coefficient

ProShares Ultra  Direxion Daily

Average diversification

The 3 months correlation between ProShares and Direxion is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Financials and Direxion Daily Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Aerospace 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 Financials 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 Aerospace 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 is expected to generate 1.09 times less return on investment than Direxion Daily. But when comparing it to its historical volatility, ProShares Ultra Financials is 1.57 times less risky than Direxion Daily. It trades about 0.07 of its potential returns per unit of risk. Direxion Daily Aerospace is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,749  in Direxion Daily Aerospace on October 4, 2024 and sell it today you would earn a total of  1,002  from holding Direxion Daily Aerospace or generate 57.29% return on investment over 90 days.

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

ProShares Ultra Financials  vs.  Direxion Daily Aerospace

ProShares Ultra Fina

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Financials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, ProShares Ultra may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Direxion Daily Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direxion Daily Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Etf's technical and fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the ETF 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 Financials and Direxion Daily Aerospace 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.