Correlation Between ProShares Trust and Vanguard Index

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

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

Diversification Opportunities for ProShares Trust and Vanguard Index

0.88

Correlation Coefficient

ProShares Trust  Vanguard Index

Very poor diversification

The 3 months correlation between ProShares and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Trust and Vanguard Index Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Index Funds and ProShares Trust 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 Trust are associated (or correlated) with Vanguard Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Index Funds has no effect on the direction of ProShares Trust i.e., ProShares Trust and Vanguard Index go up and down completely randomly.

Pair Corralation between ProShares Trust and Vanguard Index

Assuming the 90 days trading horizon ProShares Trust is expected to generate 2.21 times more return on investment than Vanguard Index. However, ProShares Trust is 2.21 times more volatile than Vanguard Index Funds. It trades about 0.1 of its potential returns per unit of risk. Vanguard Index Funds is currently generating about 0.15 per unit of risk. If you would invest  107,939  in ProShares Trust on October 3, 2024 and sell it today you would earn a total of  115,961  from holding ProShares Trust or generate 107.43% return on investment over 90 days.

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

ProShares Trust   vs.  Vanguard Index Funds

ProShares Trust

Risk-Adjusted Performance

9 of 100

OK

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

Vanguard Index Funds

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Index Funds are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Index may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ProShares Trust and Vanguard Index

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

The idea behind ProShares Trust and Vanguard Index Funds 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.