Correlation Between ProShares Trust and Select Sector

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

By analyzing existing cross correlation between ProShares Trust and The Select Sector, you can compare the effects of market volatilities on ProShares Trust and Select Sector 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 Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Trust and Select Sector.

Diversification Opportunities for ProShares Trust and Select Sector

0.08

Correlation Coefficient

ProShares Trust  Select Sector

Significant diversification

The 3 months correlation between ProShares and Select is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Trust and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector 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 Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of ProShares Trust i.e., ProShares Trust and Select Sector go up and down completely randomly.

Pair Corralation between ProShares Trust and Select Sector

Assuming the 90 days trading horizon ProShares Trust is expected to under-perform the Select Sector. In addition to that, ProShares Trust is 1.76 times more volatile than The Select Sector. It trades about -0.14 of its total potential returns per unit of risk. The Select Sector is currently generating about 0.11 per unit of volatility. If you would invest  173,456  in The Select Sector on December 30, 2024 and sell it today you would earn a total of  14,644  from holding The Select Sector or generate 8.44% return on investment over 90 days.

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

ProShares Trust   vs.  The Select Sector

ProShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Select Sector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Select Sector may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ProShares Trust and Select Sector

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

The idea behind ProShares Trust and The Select Sector 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.