Correlation Between ProShares UltraPro and Invesco SP

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

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

Diversification Opportunities for ProShares UltraPro and Invesco SP

0.75

Correlation Coefficient

ProShares UltraPro  Invesco SP

Poor diversification

The 3 months correlation between ProShares and Invesco is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraPro SP500 and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and ProShares UltraPro 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 UltraPro SP500 are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of ProShares UltraPro i.e., ProShares UltraPro and Invesco SP go up and down completely randomly.

Pair Corralation between ProShares UltraPro and Invesco SP

Given the investment horizon of 90 days ProShares UltraPro SP500 is expected to generate 1.66 times more return on investment than Invesco SP. However, ProShares UltraPro is 1.66 times more volatile than Invesco SP SmallCap. It trades about 0.13 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.07 per unit of risk. If you would invest  4,812  in ProShares UltraPro SP500 on August 26, 2024 and sell it today you would earn a total of  4,582  from holding ProShares UltraPro SP500 or generate 95.22% return on investment over 90 days.

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

ProShares UltraPro SP500  vs.  Invesco SP SmallCap

ProShares UltraPro SP500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraPro SP500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, ProShares UltraPro displayed solid returns over the last few months and may actually be approaching a breakup point.

Invesco SP SmallCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very sluggish basic indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with ProShares UltraPro and Invesco SP

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

The idea behind ProShares UltraPro SP500 and Invesco SP SmallCap 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.