Correlation Between Cambria Tail and ProShares UltraShort

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

Diversification Opportunities for Cambria Tail and ProShares UltraShort

0.94

Correlation Coefficient

Cambria Tail  ProShares UltraShort

Almost no diversification

The 3 months correlation between Cambria and ProShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Tail Risk and ProShares UltraShort SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort 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 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 Cambria Tail i.e., Cambria Tail and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Cambria Tail and ProShares UltraShort

Given the investment horizon of 90 days Cambria Tail is expected to generate 2.27 times less return on investment than ProShares UltraShort. But when comparing it to its historical volatility, Cambria Tail Risk is 2.01 times less risky than ProShares UltraShort. It trades about 0.1 of its potential returns per unit of risk. ProShares UltraShort SP500 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,928  in ProShares UltraShort SP500 on December 29, 2024 and sell it today you would earn a total of  245.00  from holding ProShares UltraShort SP500 or generate 12.71% return on investment over 90 days.

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

Cambria Tail Risk  vs.  ProShares UltraShort SP500

Cambria Tail Risk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Tail Risk are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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 UltraShort

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort SP500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, ProShares UltraShort unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cambria Tail and ProShares UltraShort

The main advantage of trading using opposite Cambria Tail and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cambria Tail 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 Cambria Tail Risk 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.