Correlation Between ProShares UltraShort and IShares Consumer

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

By analyzing existing cross correlation between ProShares UltraShort Consumer and iShares Consumer Staples, you can compare the effects of market volatilities on ProShares UltraShort and IShares Consumer 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 UltraShort with a short position of IShares Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and IShares Consumer.

Diversification Opportunities for ProShares UltraShort and IShares Consumer

-0.87

Correlation Coefficient

ProShares UltraShort  IShares Consumer

Pay attention - limited upside

The 3 months correlation between ProShares and IShares is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Consumer and iShares Consumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Staples and ProShares UltraShort 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 UltraShort Consumer are associated (or correlated) with IShares Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Consumer Staples has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and IShares Consumer go up and down completely randomly.

Pair Corralation between ProShares UltraShort and IShares Consumer

Considering the 90-day investment horizon ProShares UltraShort Consumer is expected to generate 1.74 times more return on investment than IShares Consumer. However, ProShares UltraShort is 1.74 times more volatile than iShares Consumer Staples. It trades about 0.24 of its potential returns per unit of risk. iShares Consumer Staples is currently generating about -0.53 per unit of risk. If you would invest  1,192  in ProShares UltraShort Consumer on September 24, 2024 and sell it today you would earn a total of  60.00  from holding ProShares UltraShort Consumer or generate 5.03% return on investment over 90 days.

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

ProShares UltraShort Consumer  vs.  iShares Consumer Staples

ProShares UltraShort

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Consumer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, ProShares UltraShort may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Consumer Staples

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Consumer Staples has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IShares Consumer 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 UltraShort and IShares Consumer

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

The idea behind ProShares UltraShort Consumer and iShares Consumer Staples 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.