Correlation Between MicroSectors FANG and ProShares Trust

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

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

Diversification Opportunities for MicroSectors FANG and ProShares Trust

-0.85

Correlation Coefficient

MicroSectors FANG  ProShares Trust

Pay attention - limited upside

The 3 months correlation between MicroSectors and ProShares is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and ProShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Trust and MicroSectors FANG 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 FANG Index are associated (or correlated) with ProShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Trust has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and ProShares Trust go up and down completely randomly.

Pair Corralation between MicroSectors FANG and ProShares Trust

Given the investment horizon of 90 days MicroSectors FANG is expected to generate 4.85 times less return on investment than ProShares Trust. But when comparing it to its historical volatility, MicroSectors FANG Index is 1.58 times less risky than ProShares Trust. It trades about 0.07 of its potential returns per unit of risk. ProShares Trust is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,954  in ProShares Trust on October 22, 2024 and sell it today you would earn a total of  1,159  from holding ProShares Trust or generate 23.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

MicroSectors FANG Index  vs.  ProShares Trust

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

ProShares Trust

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, ProShares Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MicroSectors FANG and ProShares Trust

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

The idea behind MicroSectors FANG Index and ProShares Trust 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.