Correlation Between ProShares Ultra and First Trust

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

Diversification Opportunities for ProShares Ultra and First Trust

-0.43

Correlation Coefficient

ProShares Ultra  First Trust

Very good diversification

The 3 months correlation between ProShares and First is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Oil and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and First Trust go up and down completely randomly.

Pair Corralation between ProShares Ultra and First Trust

Considering the 90-day investment horizon ProShares Ultra Oil is expected to under-perform the First Trust. In addition to that, ProShares Ultra is 11.23 times more volatile than First Trust TCW. It trades about -0.51 of its total potential returns per unit of risk. First Trust TCW is currently generating about 0.05 per unit of volatility. If you would invest  2,452  in First Trust TCW on September 19, 2024 and sell it today you would earn a total of  4.00  from holding First Trust TCW or generate 0.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

ProShares Ultra Oil  vs.  First Trust TCW

ProShares Ultra Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Ultra Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, ProShares Ultra is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust TCW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust TCW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ProShares Ultra and First Trust

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

The idea behind ProShares Ultra Oil and First Trust TCW 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 Global Correlations module to find global opportunities by holding instruments from different markets.