Correlation Between ProShares High and First Trust

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

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

Diversification Opportunities for ProShares High and First Trust

-0.41

Correlation Coefficient

ProShares High  First Trust

Very good diversification

The 3 months correlation between ProShares and First is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding ProShares High YieldInterest and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW and ProShares High 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 ProShares High YieldInterest are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of ProShares High i.e., ProShares High and First Trust go up and down completely randomly.

Pair Corralation between ProShares High and First Trust

Given the investment horizon of 90 days ProShares High is expected to generate 1.73 times less return on investment than First Trust. But when comparing it to its historical volatility, ProShares High YieldInterest is 1.05 times less risky than First Trust. It trades about 0.01 of its potential returns per unit of risk. First Trust TCW is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,457  in First Trust TCW on September 22, 2024 and sell it today you would earn a total of  2.00  from holding First Trust TCW or generate 0.08% return on investment over 90 days.

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

ProShares High YieldInterest  vs.  First Trust TCW

ProShares High Yield

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares High YieldInterest are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, ProShares High is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust TCW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust TCW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ProShares High and First Trust

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

The idea behind ProShares High YieldInterest and First Trust TCW 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.