Correlation Between ProShares UltraShort and ProShares Short

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

By analyzing existing cross correlation between ProShares UltraShort QQQ and ProShares Short Russell2000, you can compare the effects of market volatilities on ProShares UltraShort and ProShares Short 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 UltraShort with a short position of ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and ProShares Short.

Diversification Opportunities for ProShares UltraShort and ProShares Short

0.95

Correlation Coefficient

ProShares UltraShort  ProShares Short

Almost no diversification

The 3 months correlation between ProShares and ProShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort QQQ and ProShares Short Russell2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short Russ and ProShares UltraShort 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 UltraShort QQQ are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short Russ has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and ProShares Short go up and down completely randomly.

Pair Corralation between ProShares UltraShort and ProShares Short

Considering the 90-day investment horizon ProShares UltraShort QQQ is expected to generate 2.3 times more return on investment than ProShares Short. However, ProShares UltraShort is 2.3 times more volatile than ProShares Short Russell2000. It trades about 0.12 of its potential returns per unit of risk. ProShares Short Russell2000 is currently generating about 0.15 per unit of risk. If you would invest  3,178  in ProShares UltraShort QQQ on December 30, 2024 and sell it today you would earn a total of  627.00  from holding ProShares UltraShort QQQ or generate 19.73% return on investment over 90 days.

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

ProShares UltraShort QQQ  vs.  ProShares Short Russell2000

ProShares UltraShort QQQ

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort QQQ are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, ProShares UltraShort exhibited solid returns over the last few months and may actually be approaching a breakup point.

ProShares Short Russ

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short Russell2000 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, ProShares Short may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ProShares UltraShort and ProShares Short

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

The idea behind ProShares UltraShort QQQ and ProShares Short Russell2000 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.