Correlation Between Cambria Tail and ProShares Short

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

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

Diversification Opportunities for Cambria Tail and ProShares Short

-0.54

Correlation Coefficient

Cambria Tail  ProShares Short

Excellent diversification

The 3 months correlation between Cambria and ProShares is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Tail Risk and ProShares Short MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short MSCI and Cambria Tail 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 Cambria Tail Risk are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short MSCI has no effect on the direction of Cambria Tail i.e., Cambria Tail and ProShares Short go up and down completely randomly.

Pair Corralation between Cambria Tail and ProShares Short

Given the investment horizon of 90 days Cambria Tail Risk is expected to under-perform the ProShares Short. But the etf apears to be less risky and, when comparing its historical volatility, Cambria Tail Risk is 1.1 times less risky than ProShares Short. The etf trades about -0.21 of its potential returns per unit of risk. The ProShares Short MSCI is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,674  in ProShares Short MSCI on October 20, 2024 and sell it today you would lose (23.00) from holding ProShares Short MSCI or give up 1.37% of portfolio value over 90 days.

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

Cambria Tail Risk  vs.  ProShares Short MSCI

Cambria Tail Risk

Risk-Adjusted Performance

0 of 100

Very Weak

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

ProShares Short MSCI

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short MSCI are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, ProShares Short is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cambria Tail and ProShares Short

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

The idea behind Cambria Tail Risk and ProShares Short MSCI 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.