Correlation Between MicroSectors Solactive and ProShares UltraShort

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

By analyzing existing cross correlation between MicroSectors Solactive FANG and ProShares UltraShort Dow30, you can compare the effects of market volatilities on MicroSectors Solactive and ProShares UltraShort 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 MicroSectors Solactive with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Solactive and ProShares UltraShort.

Diversification Opportunities for MicroSectors Solactive and ProShares UltraShort

-0.96

Correlation Coefficient

MicroSectors Solactive  ProShares UltraShort

Pay attention - limited upside

The 3 months correlation between MicroSectors and ProShares is -0.96. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Solactive FANG and ProShares UltraShort Dow30 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and MicroSectors Solactive 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 MicroSectors Solactive FANG are associated (or correlated) with ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of MicroSectors Solactive i.e., MicroSectors Solactive and ProShares UltraShort go up and down completely randomly.

Pair Corralation between MicroSectors Solactive and ProShares UltraShort

Given the investment horizon of 90 days MicroSectors Solactive FANG is expected to generate 2.25 times more return on investment than ProShares UltraShort. However, MicroSectors Solactive is 2.25 times more volatile than ProShares UltraShort Dow30. It trades about 0.26 of its potential returns per unit of risk. ProShares UltraShort Dow30 is currently generating about -0.12 per unit of risk. If you would invest  11,101  in MicroSectors Solactive FANG on May 2, 2025 and sell it today you would earn a total of  7,696  from holding MicroSectors Solactive FANG or generate 69.33% return on investment over 90 days.

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

MicroSectors Solactive FANG  vs.  ProShares UltraShort Dow30

MicroSectors Solactive

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Solactive FANG are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, MicroSectors Solactive showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares UltraShort

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares UltraShort Dow30 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with MicroSectors Solactive and ProShares UltraShort

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

The idea behind MicroSectors Solactive FANG and ProShares UltraShort Dow30 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.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.