Correlation Between First Trust and ProShares UltraShort

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

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

Diversification Opportunities for First Trust and ProShares UltraShort

0.1

Correlation Coefficient

First Trust  ProShares UltraShort

Average diversification

The 3 months correlation between First and ProShares is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and ProShares UltraShort Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and First Trust 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 First Trust SkyBridge 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 First Trust i.e., First Trust and ProShares UltraShort go up and down completely randomly.

Pair Corralation between First Trust and ProShares UltraShort

Given the investment horizon of 90 days First Trust SkyBridge is expected to under-perform the ProShares UltraShort. In addition to that, First Trust is 1.95 times more volatile than ProShares UltraShort Utilities. It trades about -0.09 of its total potential returns per unit of risk. ProShares UltraShort Utilities is currently generating about -0.04 per unit of volatility. If you would invest  1,657  in ProShares UltraShort Utilities on December 29, 2024 and sell it today you would lose (100.00) from holding ProShares UltraShort Utilities or give up 6.04% of portfolio value over 90 days.

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

First Trust SkyBridge  vs.  ProShares UltraShort Utilities

First Trust SkyBridge

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SkyBridge has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

ProShares UltraShort

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares UltraShort Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and ProShares UltraShort

The main advantage of trading using opposite First Trust and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust SkyBridge and ProShares UltraShort Utilities 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.