Correlation Between ETRACS Monthly and ProShares Ultra

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

By analyzing existing cross correlation between ETRACS Monthly Pay and ProShares Ultra SP500, you can compare the effects of market volatilities on ETRACS Monthly and ProShares Ultra 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 ETRACS Monthly with a short position of ProShares Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS Monthly and ProShares Ultra.

Diversification Opportunities for ETRACS Monthly and ProShares Ultra

-0.4

Correlation Coefficient

ETRACS Monthly  ProShares Ultra

Very good diversification

The 3 months correlation between ETRACS and ProShares is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS Monthly Pay and ProShares Ultra SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra SP500 and ETRACS Monthly 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 ETRACS Monthly Pay are associated (or correlated) with ProShares Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra SP500 has no effect on the direction of ETRACS Monthly i.e., ETRACS Monthly and ProShares Ultra go up and down completely randomly.

Pair Corralation between ETRACS Monthly and ProShares Ultra

Given the investment horizon of 90 days ETRACS Monthly Pay is expected to under-perform the ProShares Ultra. But the etf apears to be less risky and, when comparing its historical volatility, ETRACS Monthly Pay is 1.04 times less risky than ProShares Ultra. The etf trades about -0.02 of its potential returns per unit of risk. The ProShares Ultra SP500 is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  8,261  in ProShares Ultra SP500 on September 5, 2024 and sell it today you would earn a total of  1,588  from holding ProShares Ultra SP500 or generate 19.22% return on investment over 90 days.

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

ETRACS Monthly Pay  vs.  ProShares Ultra SP500

ETRACS Monthly Pay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETRACS Monthly Pay has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, ETRACS Monthly is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

ProShares Ultra SP500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra SP500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, ProShares Ultra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ETRACS Monthly and ProShares Ultra

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

The idea behind ETRACS Monthly Pay and ProShares Ultra SP500 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 Global Correlations module to find global opportunities by holding instruments from different markets.