Correlation Between ProShares and Xtrackers Short

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

By analyzing existing cross correlation between ProShares SP 500 and Xtrackers Short Duration, you can compare the effects of market volatilities on ProShares and Xtrackers 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 with a short position of Xtrackers Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and Xtrackers Short.

Diversification Opportunities for ProShares and Xtrackers Short

0.85

Correlation Coefficient

ProShares  Xtrackers Short

Very poor diversification

The 3 months correlation between ProShares and Xtrackers is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and Xtrackers Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Short Duration 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 500 are associated (or correlated) with Xtrackers Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Short Duration has no effect on the direction of ProShares i.e., ProShares and Xtrackers Short go up and down completely randomly.

Pair Corralation between ProShares and Xtrackers Short

Given the investment horizon of 90 days ProShares SP 500 is expected to generate 3.4 times more return on investment than Xtrackers Short. However, ProShares is 3.4 times more volatile than Xtrackers Short Duration. It trades about 0.13 of its potential returns per unit of risk. Xtrackers Short Duration is currently generating about 0.17 per unit of risk. If you would invest  4,855  in ProShares SP 500 on October 3, 2024 and sell it today you would earn a total of  1,472  from holding ProShares SP 500 or generate 30.32% return on investment over 90 days.

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

ProShares SP 500  vs.  Xtrackers Short Duration

ProShares SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ProShares is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Xtrackers Short Duration

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Short Duration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Xtrackers Short is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ProShares and Xtrackers Short

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

The idea behind ProShares SP 500 and Xtrackers Short Duration 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.