Correlation Between ProShares Short and ProShares UltraShort

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

By analyzing existing cross correlation between ProShares Short SmallCap600 and ProShares UltraShort MidCap400, you can compare the effects of market volatilities on ProShares Short and ProShares UltraShort 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 Short with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Short and ProShares UltraShort.

Diversification Opportunities for ProShares Short and ProShares UltraShort

0.96

Correlation Coefficient

ProShares Short  ProShares UltraShort

Almost no diversification

The 3 months correlation between ProShares and ProShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Short SmallCap600 and ProShares UltraShort MidCap400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and ProShares Short 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 Short SmallCap600 are associated (or correlated) with ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of ProShares Short i.e., ProShares Short and ProShares UltraShort go up and down completely randomly.

Pair Corralation between ProShares Short and ProShares UltraShort

Considering the 90-day investment horizon ProShares Short is expected to generate 1.39 times less return on investment than ProShares UltraShort. But when comparing it to its historical volatility, ProShares Short SmallCap600 is 1.8 times less risky than ProShares UltraShort. It trades about 0.21 of its potential returns per unit of risk. ProShares UltraShort MidCap400 is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  841.00  in ProShares UltraShort MidCap400 on December 1, 2024 and sell it today you would earn a total of  158.00  from holding ProShares UltraShort MidCap400 or generate 18.79% return on investment over 90 days.

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

ProShares Short SmallCap600  vs.  ProShares UltraShort MidCap400

ProShares Short Smal

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short SmallCap600 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, ProShares Short sustained solid returns over the last few months and may actually be approaching a breakup point.

ProShares UltraShort

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort MidCap400 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, ProShares UltraShort showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Short and ProShares UltraShort

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

The idea behind ProShares Short SmallCap600 and ProShares UltraShort MidCap400 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.