Correlation Between ProShares Ultra and Invesco DWA

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

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

Diversification Opportunities for ProShares Ultra and Invesco DWA

0.8

Correlation Coefficient

ProShares Ultra  Invesco DWA

Very poor diversification

The 3 months correlation between ProShares and Invesco is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Oil and Invesco DWA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Financial and ProShares Ultra 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 Ultra Oil are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Financial has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Invesco DWA go up and down completely randomly.

Pair Corralation between ProShares Ultra and Invesco DWA

Considering the 90-day investment horizon ProShares Ultra is expected to generate 1.02 times less return on investment than Invesco DWA. In addition to that, ProShares Ultra is 1.62 times more volatile than Invesco DWA Financial. It trades about 0.08 of its total potential returns per unit of risk. Invesco DWA Financial is currently generating about 0.13 per unit of volatility. If you would invest  5,374  in Invesco DWA Financial on September 13, 2024 and sell it today you would earn a total of  673.00  from holding Invesco DWA Financial or generate 12.52% return on investment over 90 days.

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

ProShares Ultra Oil  vs.  Invesco DWA Financial

ProShares Ultra Oil

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Oil are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward indicators, ProShares Ultra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco DWA Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares Ultra and Invesco DWA

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

The idea behind ProShares Ultra Oil and Invesco DWA Financial 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.