Correlation Between ProShares and OShares Quality

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

By analyzing existing cross correlation between ProShares SP MidCap and OShares Quality Dividend, you can compare the effects of market volatilities on ProShares and OShares Quality 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 with a short position of OShares Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and OShares Quality.

Diversification Opportunities for ProShares and OShares Quality

0.82

Correlation Coefficient

ProShares  OShares Quality

Very poor diversification

The 3 months correlation between ProShares and OShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP MidCap and OShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OShares Quality Dividend and ProShares 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 SP MidCap are associated (or correlated) with OShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OShares Quality Dividend has no effect on the direction of ProShares i.e., ProShares and OShares Quality go up and down completely randomly.

Pair Corralation between ProShares and OShares Quality

Given the investment horizon of 90 days ProShares SP MidCap is expected to generate 1.45 times more return on investment than OShares Quality. However, ProShares is 1.45 times more volatile than OShares Quality Dividend. It trades about 0.1 of its potential returns per unit of risk. OShares Quality Dividend is currently generating about 0.1 per unit of risk. If you would invest  7,209  in ProShares SP MidCap on September 29, 2024 and sell it today you would earn a total of  875.00  from holding ProShares SP MidCap or generate 12.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

ProShares SP MidCap  vs.  OShares Quality Dividend

ProShares SP MidCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares SP MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, ProShares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

OShares Quality Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Quality Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, OShares Quality is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ProShares and OShares Quality

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

The idea behind ProShares SP MidCap and OShares Quality Dividend 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.