Correlation Between Volatility Shares and ProShares Short

Can any of the company-specific risk be diversified away by investing in both Volatility Shares and ProShares Short 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 Short 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 Short VIX, you can compare the effects of market volatilities on Volatility Shares and ProShares Short 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 Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volatility Shares and ProShares Short.

Diversification Opportunities for Volatility Shares and ProShares Short

0.76

Correlation Coefficient

Volatility Shares  ProShares Short

Poor diversification

The 3 months correlation between Volatility and ProShares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and ProShares Short VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short VIX 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short VIX has no effect on the direction of Volatility Shares i.e., Volatility Shares and ProShares Short go up and down completely randomly.

Pair Corralation between Volatility Shares and ProShares Short

Given the investment horizon of 90 days Volatility Shares Trust is expected to generate 3.92 times more return on investment than ProShares Short. However, Volatility Shares is 3.92 times more volatile than ProShares Short VIX. It trades about 0.27 of its potential returns per unit of risk. ProShares Short VIX is currently generating about 0.06 per unit of risk. If you would invest  2,344  in Volatility Shares Trust on September 15, 2024 and sell it today you would earn a total of  4,118  from holding Volatility Shares Trust or generate 175.68% return on investment over 90 days.

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

Volatility Shares Trust  vs.  ProShares Short VIX

Volatility Shares Trust

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 21 (%) 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 Short VIX

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short VIX are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, ProShares Short may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Volatility Shares and ProShares Short

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

The idea behind Volatility Shares Trust and ProShares Short VIX 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.