Correlation Between ProShares UltraShort and Invesco Taxable

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

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

Diversification Opportunities for ProShares UltraShort and Invesco Taxable

-0.77

Correlation Coefficient

ProShares UltraShort  Invesco Taxable

Pay attention - limited upside

The 3 months correlation between ProShares and Invesco is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort MSCI and Invesco Taxable Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Taxable Municipal and ProShares UltraShort 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 UltraShort MSCI are associated (or correlated) with Invesco Taxable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Taxable Municipal has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Invesco Taxable go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Invesco Taxable

Considering the 90-day investment horizon ProShares UltraShort MSCI is expected to generate 2.84 times more return on investment than Invesco Taxable. However, ProShares UltraShort is 2.84 times more volatile than Invesco Taxable Municipal. It trades about 0.13 of its potential returns per unit of risk. Invesco Taxable Municipal is currently generating about -0.1 per unit of risk. If you would invest  1,583  in ProShares UltraShort MSCI on September 23, 2024 and sell it today you would earn a total of  62.00  from holding ProShares UltraShort MSCI or generate 3.92% return on investment over 90 days.

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

ProShares UltraShort MSCI  vs.  Invesco Taxable Municipal

ProShares UltraShort MSCI

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort MSCI are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, ProShares UltraShort unveiled solid returns over the last few months and may actually be approaching a breakup point.

Invesco Taxable Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Taxable Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invesco Taxable is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ProShares UltraShort and Invesco Taxable

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

The idea behind ProShares UltraShort MSCI and Invesco Taxable Municipal 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 Commodity Directory module to find actively traded commodities issued by global exchanges.