Correlation Between ProShares Ultra and ETRACS 2x

Can any of the company-specific risk be diversified away by investing in both ProShares Ultra and ETRACS 2x 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 Ultra and ETRACS 2x into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ProShares Ultra SP500 and ETRACS 2x Leveraged, you can compare the effects of market volatilities on ProShares Ultra and ETRACS 2x 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 Ultra with a short position of ETRACS 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and ETRACS 2x.

Diversification Opportunities for ProShares Ultra and ETRACS 2x

0.84

Correlation Coefficient

ProShares Ultra  ETRACS 2x

Very poor diversification

The 3 months correlation between ProShares and ETRACS is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra SP500 and ETRACS 2x Leveraged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS 2x Leveraged and ProShares Ultra 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 Ultra SP500 are associated (or correlated) with ETRACS 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS 2x Leveraged has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and ETRACS 2x go up and down completely randomly.

Pair Corralation between ProShares Ultra and ETRACS 2x

Considering the 90-day investment horizon ProShares Ultra SP500 is expected to under-perform the ETRACS 2x. But the etf apears to be less risky and, when comparing its historical volatility, ProShares Ultra SP500 is 1.36 times less risky than ETRACS 2x. The etf trades about -0.09 of its potential returns per unit of risk. The ETRACS 2x Leveraged is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,000  in ETRACS 2x Leveraged on December 29, 2024 and sell it today you would lose (238.00) from holding ETRACS 2x Leveraged or give up 7.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

ProShares Ultra SP500  vs.  ETRACS 2x Leveraged

ProShares Ultra SP500

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares Ultra SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

ETRACS 2x Leveraged

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETRACS 2x Leveraged has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, ETRACS 2x is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ProShares Ultra and ETRACS 2x

The main advantage of trading using opposite ProShares Ultra and ETRACS 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares Ultra position performs unexpectedly, ETRACS 2x 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 ETRACS 2x will offset losses from the drop in ETRACS 2x's long position.

The idea behind ProShares Ultra SP500 and ETRACS 2x Leveraged 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.