Correlation Between ProShares and Absolute Core

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

By analyzing existing cross correlation between ProShares SP 500 and Absolute Core Strategy, you can compare the effects of market volatilities on ProShares and Absolute Core 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 with a short position of Absolute Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and Absolute Core.

Diversification Opportunities for ProShares and Absolute Core

0.66

Correlation Coefficient

ProShares  Absolute Core

Poor diversification

The 3 months correlation between ProShares and Absolute is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and Absolute Core Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Core Strategy and ProShares 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 SP 500 are associated (or correlated) with Absolute Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Core Strategy has no effect on the direction of ProShares i.e., ProShares and Absolute Core go up and down completely randomly.

Pair Corralation between ProShares and Absolute Core

Given the investment horizon of 90 days ProShares is expected to generate 3.42 times less return on investment than Absolute Core. In addition to that, ProShares is 1.54 times more volatile than Absolute Core Strategy. It trades about 0.05 of its total potential returns per unit of risk. Absolute Core Strategy is currently generating about 0.24 per unit of volatility. If you would invest  3,143  in Absolute Core Strategy on December 29, 2024 and sell it today you would earn a total of  258.00  from holding Absolute Core Strategy or generate 8.21% return on investment over 90 days.

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

ProShares SP 500  vs.  Absolute Core Strategy

ProShares SP 500

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, ProShares is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Absolute Core Strategy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Core Strategy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Absolute Core may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ProShares and Absolute Core

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

The idea behind ProShares SP 500 and Absolute Core Strategy 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.