Correlation Between ProShares UltraShort and ProShares UltraShort

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

By analyzing existing cross correlation between ProShares UltraShort Russell2000 and ProShares UltraShort MidCap400, you can compare the effects of market volatilities on ProShares UltraShort 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 ProShares UltraShort with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and ProShares UltraShort.

Diversification Opportunities for ProShares UltraShort and ProShares UltraShort

0.99

Correlation Coefficient

ProShares UltraShort  ProShares UltraShort

No risk reduction

The 3 months correlation between ProShares and ProShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Russell20 and ProShares UltraShort MidCap400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 Russell2000 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 ProShares UltraShort i.e., ProShares UltraShort and ProShares UltraShort go up and down completely randomly.

Pair Corralation between ProShares UltraShort and ProShares UltraShort

Considering the 90-day investment horizon ProShares UltraShort Russell2000 is expected to generate 1.13 times more return on investment than ProShares UltraShort. However, ProShares UltraShort is 1.13 times more volatile than ProShares UltraShort MidCap400. It trades about 0.14 of its potential returns per unit of risk. ProShares UltraShort MidCap400 is currently generating about 0.15 per unit of risk. If you would invest  4,165  in ProShares UltraShort Russell2000 on September 21, 2024 and sell it today you would earn a total of  309.00  from holding ProShares UltraShort Russell2000 or generate 7.42% return on investment over 90 days.

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

ProShares UltraShort Russell20  vs.  ProShares UltraShort MidCap400

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort Russell2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ProShares UltraShort is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

ProShares UltraShort

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort MidCap400 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, ProShares UltraShort is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ProShares UltraShort and ProShares UltraShort

The main advantage of trading using opposite ProShares UltraShort and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort 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 ProShares UltraShort Russell2000 and ProShares UltraShort MidCap400 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.