Correlation Between First Trust and ProShares UltraShort

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

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

Diversification Opportunities for First Trust and ProShares UltraShort

-0.38

Correlation Coefficient

First Trust  ProShares UltraShort

Very good diversification

The 3 months correlation between First and ProShares is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and ProShares UltraShort Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 Consumer 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 First Trust i.e., First Trust and ProShares UltraShort go up and down completely randomly.

Pair Corralation between First Trust and ProShares UltraShort

Considering the 90-day investment horizon First Trust Consumer is expected to generate 0.51 times more return on investment than ProShares UltraShort. However, First Trust Consumer is 1.95 times less risky than ProShares UltraShort. It trades about 0.02 of its potential returns per unit of risk. ProShares UltraShort Consumer is currently generating about -0.02 per unit of risk. If you would invest  6,117  in First Trust Consumer on September 20, 2024 and sell it today you would earn a total of  386.00  from holding First Trust Consumer or generate 6.31% return on investment over 90 days.

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

First Trust Consumer  vs.  ProShares UltraShort Consumer

First Trust Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Consumer 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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

ProShares UltraShort

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Consumer are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, ProShares UltraShort may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and ProShares UltraShort

The main advantage of trading using opposite First Trust and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Consumer and ProShares UltraShort 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.