Correlation Between ProShares UltraShort and SPDR SP
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and SPDR SP 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 SPDR SP 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 SPDR SP 500, you can compare the effects of market volatilities on ProShares UltraShort and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and SPDR SP.
Diversification Opportunities for ProShares UltraShort and SPDR SP
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between ProShares and SPDR is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SmallCap6 and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and SPDR SP go up and down completely randomly.
Pair Corralation between ProShares UltraShort and SPDR SP
Considering the 90-day investment horizon ProShares UltraShort is expected to generate 1.65 times less return on investment than SPDR SP. In addition to that, ProShares UltraShort is 3.33 times more volatile than SPDR SP 500. It trades about 0.02 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.12 per unit of volatility. If you would invest 47,501 in SPDR SP 500 on January 18, 2024 and sell it today you would earn a total of 2,554 from holding SPDR SP 500 or generate 5.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
ProShares UltraShort SmallCap6 vs. SPDR SP 500
Performance |
| Timeline |
| ProShares UltraShort |
| SPDR SP 500 |
ProShares UltraShort and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and SPDR SP
The main advantage of trading using opposite ProShares UltraShort and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind ProShares UltraShort SmallCap600 and SPDR SP 500 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.
| SPDR SP vs. Schwab Small Cap ETF | SPDR SP vs. Schwab International Equity | SPDR SP vs. Schwab Emerging Markets | SPDR SP vs. Schwab Broad Market |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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