Correlation Between ProShares UltraShort and Invesco DB

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

By analyzing existing cross correlation between ProShares UltraShort Euro and Invesco DB Dollar, you can compare the effects of market volatilities on ProShares UltraShort and Invesco DB 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 DB. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Invesco DB.

Diversification Opportunities for ProShares UltraShort and Invesco DB

0.99

Correlation Coefficient

ProShares UltraShort  Invesco DB

No risk reduction

The 3 months correlation between ProShares and Invesco is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Euro and Invesco DB Dollar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Dollar 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 Euro are associated (or correlated) with Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Dollar has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Invesco DB go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Invesco DB

Considering the 90-day investment horizon ProShares UltraShort Euro is expected to under-perform the Invesco DB. In addition to that, ProShares UltraShort is 2.37 times more volatile than Invesco DB Dollar. It trades about -0.1 of its total potential returns per unit of risk. Invesco DB Dollar is currently generating about -0.09 per unit of volatility. If you would invest  2,929  in Invesco DB Dollar on December 29, 2024 and sell it today you would lose (78.00) from holding Invesco DB Dollar or give up 2.66% of portfolio value over 90 days.

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

ProShares UltraShort Euro  vs.  Invesco DB Dollar

ProShares UltraShort Euro

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares UltraShort Euro has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Invesco DB Dollar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DB Dollar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Invesco DB is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ProShares UltraShort and Invesco DB

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

The idea behind ProShares UltraShort Euro and Invesco DB Dollar 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.