Correlation Between NYSE Composite and ProShares High

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

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

Diversification Opportunities for NYSE Composite and ProShares High

0.64

Correlation Coefficient

NYSE Composite  ProShares High

Poor diversification

The 3 months correlation between NYSE and ProShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and ProShares High YieldInterest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares High Yield and NYSE Composite 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 NYSE Composite are associated (or correlated) with ProShares High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares High Yield has no effect on the direction of NYSE Composite i.e., NYSE Composite and ProShares High go up and down completely randomly.

Pair Corralation between NYSE Composite and ProShares High

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the ProShares High. In addition to that, NYSE Composite is 3.17 times more volatile than ProShares High YieldInterest. It trades about -0.05 of its total potential returns per unit of risk. ProShares High YieldInterest is currently generating about 0.24 per unit of volatility. If you would invest  6,359  in ProShares High YieldInterest on September 20, 2024 and sell it today you would earn a total of  193.00  from holding ProShares High YieldInterest or generate 3.04% return on investment over 90 days.

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

NYSE Composite  vs.  ProShares High YieldInterest

Pair Trading with NYSE Composite and ProShares High

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

The idea behind NYSE Composite and ProShares High YieldInterest 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.