Correlation Between IShares Basic and ProShares Smart

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

By analyzing existing cross correlation between iShares Basic Materials and ProShares Smart Materials, you can compare the effects of market volatilities on IShares Basic and ProShares Smart 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 IShares Basic with a short position of ProShares Smart. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Basic and ProShares Smart.

Diversification Opportunities for IShares Basic and ProShares Smart

0.87

Correlation Coefficient

IShares Basic  ProShares Smart

Very poor diversification

The 3 months correlation between IShares and ProShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials and ProShares Smart Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Smart Materials and IShares Basic 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 iShares Basic Materials are associated (or correlated) with ProShares Smart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Smart Materials has no effect on the direction of IShares Basic i.e., IShares Basic and ProShares Smart go up and down completely randomly.

Pair Corralation between IShares Basic and ProShares Smart

Considering the 90-day investment horizon iShares Basic Materials is expected to under-perform the ProShares Smart. But the etf apears to be less risky and, when comparing its historical volatility, iShares Basic Materials is 1.11 times less risky than ProShares Smart. The etf trades about -0.12 of its potential returns per unit of risk. The ProShares Smart Materials is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,959  in ProShares Smart Materials on December 4, 2024 and sell it today you would lose (42.00) from holding ProShares Smart Materials or give up 1.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

iShares Basic Materials  vs.  ProShares Smart Materials

iShares Basic Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Basic Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

ProShares Smart Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares Smart Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with IShares Basic and ProShares Smart

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

The idea behind iShares Basic Materials and ProShares Smart Materials 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.