Correlation Between Direxion Daily and ProShares Short

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

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

Diversification Opportunities for Direxion Daily and ProShares Short

0.89

Correlation Coefficient

Direxion Daily  ProShares Short

Very poor diversification

The 3 months correlation between Direxion and ProShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily Dow and ProShares Short VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short VIX 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 Dow are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short VIX has no effect on the direction of Direxion Daily i.e., Direxion Daily and ProShares Short go up and down completely randomly.

Pair Corralation between Direxion Daily and ProShares Short

Given the investment horizon of 90 days Direxion Daily Dow is expected to under-perform the ProShares Short. In addition to that, Direxion Daily is 2.18 times more volatile than ProShares Short VIX. It trades about -0.1 of its total potential returns per unit of risk. ProShares Short VIX is currently generating about -0.06 per unit of volatility. If you would invest  5,021  in ProShares Short VIX on December 29, 2024 and sell it today you would lose (447.00) from holding ProShares Short VIX or give up 8.9% of portfolio value over 90 days.

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

Direxion Daily Dow  vs.  ProShares Short VIX

Direxion Daily Dow

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direxion Daily Dow has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Etf's fundamental drivers remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.

ProShares Short VIX

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares Short VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Direxion Daily and ProShares Short

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

The idea behind Direxion Daily Dow and ProShares Short VIX 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.