Correlation Between ARK Next and ProShares Ultra

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

By analyzing existing cross correlation between ARK Next Generation and ProShares Ultra SP500, you can compare the effects of market volatilities on ARK Next and ProShares Ultra 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 ARK Next with a short position of ProShares Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK Next and ProShares Ultra.

Diversification Opportunities for ARK Next and ProShares Ultra

0.89

Correlation Coefficient

ARK Next  ProShares Ultra

Very poor diversification

The 3 months correlation between ARK and ProShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ARK Next Generation and ProShares Ultra SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra SP500 and ARK Next 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 ARK Next Generation are associated (or correlated) with ProShares Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra SP500 has no effect on the direction of ARK Next i.e., ARK Next and ProShares Ultra go up and down completely randomly.

Pair Corralation between ARK Next and ProShares Ultra

Given the investment horizon of 90 days ARK Next Generation is expected to generate 1.26 times more return on investment than ProShares Ultra. However, ARK Next is 1.26 times more volatile than ProShares Ultra SP500. It trades about 0.22 of its potential returns per unit of risk. ProShares Ultra SP500 is currently generating about 0.11 per unit of risk. If you would invest  8,172  in ARK Next Generation on August 23, 2024 and sell it today you would earn a total of  2,471  from holding ARK Next Generation or generate 30.24% return on investment over 90 days.

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

ARK Next Generation  vs.  ProShares Ultra SP500

ARK Next Generation

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward-looking signals, ARK Next showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Ultra SP500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra SP500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, ProShares Ultra may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with ARK Next and ProShares Ultra

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

The idea behind ARK Next Generation and ProShares Ultra SP500 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 Global Correlations module to find global opportunities by holding instruments from different markets.