Correlation Between Stone Ridge and Proshares Russell

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

By analyzing existing cross correlation between Stone Ridge 2048 and Proshares Russell 2000, you can compare the effects of market volatilities on Stone Ridge and Proshares Russell 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 Stone Ridge with a short position of Proshares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stone Ridge and Proshares Russell.

Diversification Opportunities for Stone Ridge and Proshares Russell

-0.49

Correlation Coefficient

Stone Ridge  Proshares Russell

Very good diversification

The 3 months correlation between Stone and Proshares is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Stone Ridge 2048 and Proshares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Proshares Russell 2000 and Stone Ridge 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 Stone Ridge 2048 are associated (or correlated) with Proshares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Proshares Russell 2000 has no effect on the direction of Stone Ridge i.e., Stone Ridge and Proshares Russell go up and down completely randomly.

Pair Corralation between Stone Ridge and Proshares Russell

Given the investment horizon of 90 days Stone Ridge is expected to generate 1.19 times less return on investment than Proshares Russell. But when comparing it to its historical volatility, Stone Ridge 2048 is 12.57 times less risky than Proshares Russell. It trades about 0.1 of its potential returns per unit of risk. Proshares Russell 2000 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,977  in Proshares Russell 2000 on December 26, 2024 and sell it today you would lose (208.00) from holding Proshares Russell 2000 or give up 5.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Stone Ridge 2048  vs.  Proshares Russell 2000

Stone Ridge 2048

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Ridge 2048 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Stone Ridge is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Proshares Russell 2000

Risk-Adjusted Performance

Very Weak

Over the last 90 days Proshares Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Proshares Russell is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Stone Ridge and Proshares Russell

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

The idea behind Stone Ridge 2048 and Proshares Russell 2000 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.