Correlation Between Alphabet and ProShares UltraShort

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

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

Diversification Opportunities for Alphabet and ProShares UltraShort

0.86

Correlation Coefficient

Alphabet  ProShares UltraShort

Very poor diversification

The 3 months correlation between Alphabet and ProShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and ProShares UltraShort Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Alphabet and ProShares UltraShort

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 1.29 times more return on investment than ProShares UltraShort. However, Alphabet is 1.29 times more volatile than ProShares UltraShort Health. It trades about 0.09 of its potential returns per unit of risk. ProShares UltraShort Health is currently generating about 0.02 per unit of risk. If you would invest  9,247  in Alphabet Inc Class C on October 4, 2024 and sell it today you would earn a total of  9,776  from holding Alphabet Inc Class C or generate 105.72% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  ProShares UltraShort Health

Alphabet Class C

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

ProShares UltraShort

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Alphabet and ProShares UltraShort

The main advantage of trading using opposite Alphabet and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C and ProShares UltraShort Health 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.