Correlation Between ProShares UltraShort and Financial Select
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Financial Select 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 Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort Utilities and Financial Select Sector, you can compare the effects of market volatilities on ProShares UltraShort and Financial Select 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 Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Financial Select.
Diversification Opportunities for ProShares UltraShort and Financial Select
-0.81 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between ProShares and Financial is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Utilities and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector 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 Utilities are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Financial Select go up and down completely randomly.
Pair Corralation between ProShares UltraShort and Financial Select
Considering the 90-day investment horizon ProShares UltraShort Utilities is expected to under-perform the Financial Select. In addition to that, ProShares UltraShort is 2.27 times more volatile than Financial Select Sector. It trades about -0.12 of its total potential returns per unit of risk. Financial Select Sector is currently generating about -0.14 per unit of volatility. If you would invest 4,189 in Financial Select Sector on January 27, 2024 and sell it today you would lose (101.00) from holding Financial Select Sector or give up 2.41% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
ProShares UltraShort Utilities vs. Financial Select Sector
Performance |
| Timeline |
| ProShares UltraShort |
| Financial Select Sector |
ProShares UltraShort and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and Financial Select
The main advantage of trading using opposite ProShares UltraShort and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, Financial Select 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 Financial Select will offset losses from the drop in Financial Select's long position.| ProShares UltraShort vs. Direxion Daily FTSE | ProShares UltraShort vs. Direxion Daily MSCI | ProShares UltraShort vs. Direxion Daily Semiconductor |
| Financial Select vs. Vanguard Industrials Index | Financial Select vs. Vanguard Consumer Discretionary | Financial Select vs. Vanguard Materials Index | Financial Select vs. Vanguard Health Care |
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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