Correlation Between ProShares Russell and American Sierra

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

By analyzing existing cross correlation between ProShares Russell 2000 and American Sierra Gold, you can compare the effects of market volatilities on ProShares Russell and American Sierra 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 Russell with a short position of American Sierra. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Russell and American Sierra.

Diversification Opportunities for ProShares Russell and American Sierra

-0.36

Correlation Coefficient

ProShares Russell  American Sierra

Very good diversification

The 3 months correlation between ProShares and American is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Russell 2000 and American Sierra Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Sierra Gold and ProShares Russell 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 Russell 2000 are associated (or correlated) with American Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Sierra Gold has no effect on the direction of ProShares Russell i.e., ProShares Russell and American Sierra go up and down completely randomly.

Pair Corralation between ProShares Russell and American Sierra

Given the investment horizon of 90 days ProShares Russell is expected to generate 6.94 times less return on investment than American Sierra. But when comparing it to its historical volatility, ProShares Russell 2000 is 12.77 times less risky than American Sierra. It trades about 0.07 of its potential returns per unit of risk. American Sierra Gold is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.60  in American Sierra Gold on September 18, 2024 and sell it today you would lose (0.20) from holding American Sierra Gold or give up 33.33% of portfolio value over 90 days.

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

ProShares Russell 2000  vs.  American Sierra Gold

ProShares Russell 2000

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Russell 2000 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, ProShares Russell is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

American Sierra Gold

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Sierra Gold are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, American Sierra reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Russell and American Sierra

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

The idea behind ProShares Russell 2000 and American Sierra Gold 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.