Correlation Between ProShares UltraShort and Direxion Daily
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort 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 UltraShort 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 UltraShort SmallCap600 and Direxion Daily SP, you can compare the effects of market volatilities on ProShares UltraShort 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 UltraShort with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Direxion Daily.
Diversification Opportunities for ProShares UltraShort and Direxion Daily
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ProShares and Direxion is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SmallCap6 and Direxion Daily SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily SP and ProShares UltraShort 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 UltraShort SmallCap600 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 SP has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Direxion Daily go up and down completely randomly.
Pair Corralation between ProShares UltraShort and Direxion Daily
Considering the 90-day investment horizon ProShares UltraShort SmallCap600 is expected to generate 3.46 times more return on investment than Direxion Daily. However, ProShares UltraShort is 3.46 times more volatile than Direxion Daily SP. It trades about 0.1 of its potential returns per unit of risk. Direxion Daily SP is currently generating about 0.21 per unit of risk. If you would invest 1,941 in ProShares UltraShort SmallCap600 on January 18, 2024 and sell it today you would earn a total of 92.00 from holding ProShares UltraShort SmallCap600 or generate 4.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ProShares UltraShort SmallCap6 vs. Direxion Daily SP
Performance |
| Timeline |
| ProShares UltraShort |
| Direxion Daily SP |
ProShares UltraShort and Direxion Daily Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and Direxion Daily
The main advantage of trading using opposite ProShares UltraShort and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort 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 UltraShort SmallCap600 and Direxion Daily SP 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.
| Direxion Daily vs. ProShares Short QQQ | Direxion Daily vs. Direxion Daily SP | Direxion Daily vs. ProShares Short Russell2000 | Direxion Daily vs. ProShares Short SP500 |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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