Correlation Between Davis Select and ProShares Short

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

By analyzing existing cross correlation between Davis Select Equity and ProShares Short SP500, you can compare the effects of market volatilities on Davis Select 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 Davis Select with a short position of ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Select and ProShares Short.

Diversification Opportunities for Davis Select and ProShares Short

-0.6

Correlation Coefficient

Davis Select  ProShares Short

Excellent diversification

The 3 months correlation between Davis and ProShares is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Davis Select Equity and ProShares Short SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short SP500 and Davis Select 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 Davis Select Equity 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 SP500 has no effect on the direction of Davis Select i.e., Davis Select and ProShares Short go up and down completely randomly.

Pair Corralation between Davis Select and ProShares Short

Given the investment horizon of 90 days Davis Select Equity is expected to generate 0.95 times more return on investment than ProShares Short. However, Davis Select Equity is 1.06 times less risky than ProShares Short. It trades about 0.32 of its potential returns per unit of risk. ProShares Short SP500 is currently generating about -0.03 per unit of risk. If you would invest  4,278  in Davis Select Equity on October 27, 2024 and sell it today you would earn a total of  219.00  from holding Davis Select Equity or generate 5.12% return on investment over 90 days.

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

Davis Select Equity  vs.  ProShares Short SP500

Davis Select Equity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ProShares Short SP500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Short SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, ProShares Short is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Davis Select and ProShares Short

The main advantage of trading using opposite Davis Select and ProShares Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Select 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 Davis Select Equity and ProShares Short SP500 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.