Correlation Between Schwab Broad and ProShares UltraPro

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

By analyzing existing cross correlation between Schwab Broad Market and ProShares UltraPro Dow30, you can compare the effects of market volatilities on Schwab Broad and ProShares UltraPro 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 Schwab Broad with a short position of ProShares UltraPro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Broad and ProShares UltraPro.

Diversification Opportunities for Schwab Broad and ProShares UltraPro

0.91

Correlation Coefficient

Schwab Broad  ProShares UltraPro

Almost no diversification

The 3 months correlation between Schwab and ProShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Broad Market and ProShares UltraPro Dow30 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraPro Dow30 and Schwab Broad 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 Schwab Broad Market are associated (or correlated) with ProShares UltraPro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraPro Dow30 has no effect on the direction of Schwab Broad i.e., Schwab Broad and ProShares UltraPro go up and down completely randomly.

Pair Corralation between Schwab Broad and ProShares UltraPro

Given the investment horizon of 90 days Schwab Broad Market is expected to generate 0.4 times more return on investment than ProShares UltraPro. However, Schwab Broad Market is 2.5 times less risky than ProShares UltraPro. It trades about -0.05 of its potential returns per unit of risk. ProShares UltraPro Dow30 is currently generating about -0.31 per unit of risk. If you would invest  2,324  in Schwab Broad Market on September 24, 2024 and sell it today you would lose (23.00) from holding Schwab Broad Market or give up 0.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Schwab Broad Market  vs.  ProShares UltraPro Dow30

Schwab Broad Market

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Broad Market are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Schwab Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ProShares UltraPro Dow30

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraPro Dow30 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, ProShares UltraPro is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Schwab Broad and ProShares UltraPro

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

The idea behind Schwab Broad Market and ProShares UltraPro Dow30 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .