Correlation Between Volatility Shares and ProShares

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

By analyzing existing cross correlation between Volatility Shares Trust and ProShares SP 500, you can compare the effects of market volatilities on Volatility Shares and ProShares 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 Volatility Shares with a short position of ProShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volatility Shares and ProShares.

Diversification Opportunities for Volatility Shares and ProShares

0.88

Correlation Coefficient

Volatility Shares  ProShares

Very poor diversification

The 3 months correlation between Volatility and ProShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and ProShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares SP 500 and Volatility Shares 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 Volatility Shares Trust are associated (or correlated) with ProShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares SP 500 has no effect on the direction of Volatility Shares i.e., Volatility Shares and ProShares go up and down completely randomly.

Pair Corralation between Volatility Shares and ProShares

Given the investment horizon of 90 days Volatility Shares Trust is expected to generate 7.6 times more return on investment than ProShares. However, Volatility Shares is 7.6 times more volatile than ProShares SP 500. It trades about 0.03 of its potential returns per unit of risk. ProShares SP 500 is currently generating about -0.09 per unit of risk. If you would invest  5,764  in Volatility Shares Trust on October 8, 2024 and sell it today you would earn a total of  5.00  from holding Volatility Shares Trust or generate 0.09% return on investment over 90 days.

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

Volatility Shares Trust  vs.  ProShares SP 500

Volatility Shares Trust

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Volatility Shares showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ProShares is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Volatility Shares and ProShares

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

The idea behind Volatility Shares Trust and ProShares SP 500 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 Transaction History module to view history of all your transactions and understand their impact on performance.