Correlation Between First Trust and ProShares Ultra

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

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

Diversification Opportunities for First Trust and ProShares Ultra

0.78

Correlation Coefficient

First Trust  ProShares Ultra

Poor diversification

The 3 months correlation between First and ProShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Nasdaq and ProShares Ultra Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra Consumer and First Trust 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 First Trust Nasdaq 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 Consumer has no effect on the direction of First Trust i.e., First Trust and ProShares Ultra go up and down completely randomly.

Pair Corralation between First Trust and ProShares Ultra

Given the investment horizon of 90 days First Trust Nasdaq is expected to generate 0.63 times more return on investment than ProShares Ultra. However, First Trust Nasdaq is 1.58 times less risky than ProShares Ultra. It trades about 0.41 of its potential returns per unit of risk. ProShares Ultra Consumer is currently generating about 0.19 per unit of risk. If you would invest  2,191  in First Trust Nasdaq on December 10, 2024 and sell it today you would earn a total of  211.00  from holding First Trust Nasdaq or generate 9.63% return on investment over 90 days.

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

First Trust Nasdaq  vs.  ProShares Ultra Consumer

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ProShares Ultra Consumer

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and ProShares Ultra

The main advantage of trading using opposite First Trust and ProShares Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Nasdaq and ProShares Ultra Consumer 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.