Correlation Between ProShares UltraShort and ProShares Short

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

By analyzing existing cross correlation between ProShares UltraShort SP500 and ProShares Short 20, you can compare the effects of market volatilities on ProShares UltraShort and ProShares Short 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 UltraShort with a short position of ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and ProShares Short.

Diversification Opportunities for ProShares UltraShort and ProShares Short

-0.6

Correlation Coefficient

ProShares UltraShort  ProShares Short

Excellent diversification

The 3 months correlation between ProShares and ProShares is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SP500 and ProShares Short 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short 20 and ProShares UltraShort 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 UltraShort SP500 are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short 20 has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and ProShares Short go up and down completely randomly.

Pair Corralation between ProShares UltraShort and ProShares Short

Considering the 90-day investment horizon ProShares UltraShort SP500 is expected to under-perform the ProShares Short. In addition to that, ProShares UltraShort is 1.56 times more volatile than ProShares Short 20. It trades about -0.08 of its total potential returns per unit of risk. ProShares Short 20 is currently generating about 0.04 per unit of volatility. If you would invest  2,090  in ProShares Short 20 on September 20, 2024 and sell it today you would earn a total of  373.00  from holding ProShares Short 20 or generate 17.85% return on investment over 90 days.

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

ProShares UltraShort SP500  vs.  ProShares Short 20

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

ProShares Short 20

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short 20 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, ProShares Short may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares UltraShort and ProShares Short

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

The idea behind ProShares UltraShort SP500 and ProShares Short 20 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.