Correlation Between MicroSectors Travel and ProShares UltraShort

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

By analyzing existing cross correlation between MicroSectors Travel 3X and ProShares UltraShort Dow30, you can compare the effects of market volatilities on MicroSectors Travel and ProShares UltraShort 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 MicroSectors Travel with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Travel and ProShares UltraShort.

Diversification Opportunities for MicroSectors Travel and ProShares UltraShort

0.87

Correlation Coefficient

MicroSectors Travel  ProShares UltraShort

Very poor diversification

The 3 months correlation between MicroSectors and ProShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Travel 3X and ProShares UltraShort Dow30 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and MicroSectors Travel 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 MicroSectors Travel 3X are associated (or correlated) with ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of MicroSectors Travel i.e., MicroSectors Travel and ProShares UltraShort go up and down completely randomly.

Pair Corralation between MicroSectors Travel and ProShares UltraShort

Given the investment horizon of 90 days MicroSectors Travel 3X is expected to generate 2.65 times more return on investment than ProShares UltraShort. However, MicroSectors Travel is 2.65 times more volatile than ProShares UltraShort Dow30. It trades about 0.1 of its potential returns per unit of risk. ProShares UltraShort Dow30 is currently generating about 0.06 per unit of risk. If you would invest  1,497  in MicroSectors Travel 3X on December 23, 2024 and sell it today you would earn a total of  361.00  from holding MicroSectors Travel 3X or generate 24.11% return on investment over 90 days.

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

MicroSectors Travel 3X  vs.  ProShares UltraShort Dow30

MicroSectors Travel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Travel 3X are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, MicroSectors Travel exhibited solid returns over the last few months and may actually be approaching a breakup point.

ProShares UltraShort

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Dow30 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ProShares UltraShort may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with MicroSectors Travel and ProShares UltraShort

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

The idea behind MicroSectors Travel 3X and ProShares UltraShort Dow30 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.