Correlation Between 1x Short and ProShares Ultra

Can any of the company-specific risk be diversified away by investing in both 1x Short and ProShares Ultra 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 1x Short and ProShares Ultra into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 1x Short VIX and ProShares Ultra QQQ, you can compare the effects of market volatilities on 1x Short and ProShares Ultra 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 1x Short with a short position of ProShares Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1x Short and ProShares Ultra.

Diversification Opportunities for 1x Short and ProShares Ultra

0.52

Correlation Coefficient

1x Short  ProShares Ultra

Very weak diversification

The 3 months correlation between SVIX and ProShares is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding 1x Short VIX and ProShares Ultra QQQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra QQQ and 1x Short 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 1x Short VIX are associated (or correlated) with ProShares Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra QQQ has no effect on the direction of 1x Short i.e., 1x Short and ProShares Ultra go up and down completely randomly.

Pair Corralation between 1x Short and ProShares Ultra

Given the investment horizon of 90 days 1x Short VIX is expected to under-perform the ProShares Ultra. In addition to that, 1x Short is 2.18 times more volatile than ProShares Ultra QQQ. It trades about -0.02 of its total potential returns per unit of risk. ProShares Ultra QQQ is currently generating about 0.04 per unit of volatility. If you would invest  11,054  in ProShares Ultra QQQ on October 9, 2024 and sell it today you would earn a total of  327.00  from holding ProShares Ultra QQQ or generate 2.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

1x Short VIX  vs.  ProShares Ultra QQQ

1x Short VIX

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 1x Short VIX are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, 1x Short showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Ultra QQQ

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra QQQ are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, ProShares Ultra may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with 1x Short and ProShares Ultra

The main advantage of trading using opposite 1x Short and ProShares Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1x Short position performs unexpectedly, ProShares Ultra 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 Ultra will offset losses from the drop in ProShares Ultra's long position.

The idea behind 1x Short VIX and ProShares Ultra QQQ 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.