Correlation Between 1x Short and ProShares UltraShort

Can any of the company-specific risk be diversified away by investing in both 1x Short and ProShares UltraShort 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 UltraShort 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 UltraShort SP500, you can compare the effects of market volatilities on 1x Short and ProShares UltraShort 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 UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1x Short and ProShares UltraShort.

Diversification Opportunities for 1x Short and ProShares UltraShort

-0.79

Correlation Coefficient

1x Short  ProShares UltraShort

Pay attention - limited upside

The 3 months correlation between SVIX and ProShares is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding 1x Short VIX and ProShares UltraShort SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of 1x Short i.e., 1x Short and ProShares UltraShort go up and down completely randomly.

Pair Corralation between 1x Short and ProShares UltraShort

Given the investment horizon of 90 days 1x Short VIX is expected to generate 2.06 times more return on investment than ProShares UltraShort. However, 1x Short is 2.06 times more volatile than ProShares UltraShort SP500. It trades about 0.0 of its potential returns per unit of risk. ProShares UltraShort SP500 is currently generating about -0.06 per unit of risk. If you would invest  2,616  in 1x Short VIX on October 24, 2024 and sell it today you would lose (26.00) from holding 1x Short VIX or give up 0.99% of portfolio value over 90 days.

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

1x Short VIX  vs.  ProShares UltraShort SP500

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 may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 latest unsteady performance, the Etf's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with 1x Short and ProShares UltraShort

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

The idea behind 1x Short VIX and ProShares UltraShort SP500 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.