Correlation Between Direxion Daily and ProShares UltraPro
Can any of the company-specific risk be diversified away by investing in both Direxion Daily and ProShares UltraPro 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 UltraPro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direxion Daily SP and ProShares UltraPro Short, you can compare the effects of market volatilities on Direxion Daily and ProShares UltraPro 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 UltraPro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and ProShares UltraPro.
Diversification Opportunities for Direxion Daily and ProShares UltraPro
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direxion and ProShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and ProShares UltraPro Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraPro Short 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 SP are associated (or correlated) with ProShares UltraPro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraPro Short has no effect on the direction of Direxion Daily i.e., Direxion Daily and ProShares UltraPro go up and down completely randomly.
Pair Corralation between Direxion Daily and ProShares UltraPro
Given the investment horizon of 90 days Direxion Daily SP is expected to generate 0.8 times more return on investment than ProShares UltraPro. However, Direxion Daily SP is 1.25 times less risky than ProShares UltraPro. It trades about -0.08 of its potential returns per unit of risk. ProShares UltraPro Short is currently generating about -0.15 per unit of risk. If you would invest 1,103 in Direxion Daily SP on September 2, 2024 and sell it today you would lose (184.00) from holding Direxion Daily SP or give up 16.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direxion Daily SP vs. ProShares UltraPro Short
Performance |
| Timeline |
| Direxion Daily SP |
| ProShares UltraPro Short |
Direxion Daily and ProShares UltraPro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direxion Daily and ProShares UltraPro
The main advantage of trading using opposite Direxion Daily and ProShares UltraPro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, ProShares UltraPro 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 UltraPro will offset losses from the drop in ProShares UltraPro's long position.The idea behind Direxion Daily SP and ProShares UltraPro Short 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.| ProShares UltraPro vs. Dimensional ETF Trust | ProShares UltraPro vs. Vanguard Small Cap Index | ProShares UltraPro vs. First Trust Multi Manager | ProShares UltraPro vs. Vanguard SP Small Cap |
Check out your portfolio center.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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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