Correlation Between MicroSectors FANG and ProShares Ultra

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

Diversification Opportunities for MicroSectors FANG and ProShares Ultra

-0.55

Correlation Coefficient

MicroSectors FANG  ProShares Ultra

Excellent diversification

The 3 months correlation between MicroSectors and ProShares is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and ProShares Ultra Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra Real 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 Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra Real has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and ProShares Ultra go up and down completely randomly.

Pair Corralation between MicroSectors FANG and ProShares Ultra

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the ProShares Ultra. In addition to that, MicroSectors FANG is 3.14 times more volatile than ProShares Ultra Real. It trades about -0.15 of its total potential returns per unit of risk. ProShares Ultra Real is currently generating about 0.26 per unit of volatility. If you would invest  6,409  in ProShares Ultra Real on December 5, 2024 and sell it today you would earn a total of  491.00  from holding ProShares Ultra Real or generate 7.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

MicroSectors FANG Index  vs.  ProShares Ultra Real

MicroSectors FANG Index

Risk-Adjusted Performance

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 comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

ProShares Ultra Real

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares Ultra Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ProShares Ultra is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MicroSectors FANG and ProShares Ultra

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

The idea behind MicroSectors FANG Index and ProShares Ultra Real 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.