Correlation Between Principal Small and Proshares

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

By analyzing existing cross correlation between Principal Small Cap Multi Factor and Proshares SP Global, you can compare the effects of market volatilities on Principal Small and Proshares 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 Principal Small with a short position of Proshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Small and Proshares.

Diversification Opportunities for Principal Small and Proshares

-0.27

Correlation Coefficient

Principal Small  Proshares

Very good diversification

The 3 months correlation between Principal and Proshares is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Principal Small Cap Multi Fact and Proshares SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Proshares SP Global and Principal Small 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 Principal Small Cap Multi Factor are associated (or correlated) with Proshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Proshares SP Global has no effect on the direction of Principal Small i.e., Principal Small and Proshares go up and down completely randomly.

Pair Corralation between Principal Small and Proshares

Considering the 90-day investment horizon Principal Small Cap Multi Factor is expected to under-perform the Proshares. But the etf apears to be less risky and, when comparing its historical volatility, Principal Small Cap Multi Factor is 1.04 times less risky than Proshares. The etf trades about -0.07 of its potential returns per unit of risk. The Proshares SP Global is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,560  in Proshares SP Global on December 29, 2024 and sell it today you would earn a total of  38.00  from holding Proshares SP Global or generate 1.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Principal Small Cap Multi Fact  vs.  Proshares SP Global

Principal Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Small Cap Multi Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Principal Small is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Proshares SP Global

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Proshares SP Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Proshares is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Principal Small and Proshares

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

The idea behind Principal Small Cap Multi Factor and Proshares SP Global 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.