Correlation Between ProShares UltraShort and Cambria Tail

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

Diversification Opportunities for ProShares UltraShort and Cambria Tail

-0.69

Correlation Coefficient

ProShares UltraShort  Cambria Tail

Excellent diversification

The 3 months correlation between ProShares and Cambria is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort MSCI and Cambria Tail Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambria Tail Risk 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 Cambria Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambria Tail Risk has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Cambria Tail go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Cambria Tail

Considering the 90-day investment horizon ProShares UltraShort MSCI is expected to under-perform the Cambria Tail. In addition to that, ProShares UltraShort is 2.12 times more volatile than Cambria Tail Risk. It trades about -0.1 of its total potential returns per unit of risk. Cambria Tail Risk is currently generating about -0.21 per unit of volatility. If you would invest  1,134  in Cambria Tail Risk on October 20, 2024 and sell it today you would lose (27.00) from holding Cambria Tail Risk or give up 2.38% of portfolio value over 90 days.

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

ProShares UltraShort MSCI  vs.  Cambria Tail Risk

ProShares UltraShort MSCI

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort MSCI are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, ProShares UltraShort may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cambria Tail Risk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cambria Tail Risk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Cambria Tail is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ProShares UltraShort and Cambria Tail

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

The idea behind ProShares UltraShort MSCI and Cambria Tail Risk 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.