Correlation Between ProShares UltraShort and First Trust

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

By analyzing existing cross correlation between ProShares UltraShort 20 and First Trust Global, you can compare the effects of market volatilities on ProShares UltraShort and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and First Trust.

Diversification Opportunities for ProShares UltraShort and First Trust

-0.8

Correlation Coefficient

ProShares UltraShort  First Trust

Pay attention - limited upside

The 3 months correlation between ProShares and First is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort 20 and First Trust Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Global 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 20 are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Global has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and First Trust go up and down completely randomly.

Pair Corralation between ProShares UltraShort and First Trust

Considering the 90-day investment horizon ProShares UltraShort 20 is expected to generate 1.53 times more return on investment than First Trust. However, ProShares UltraShort is 1.53 times more volatile than First Trust Global. It trades about 0.56 of its potential returns per unit of risk. First Trust Global is currently generating about -0.33 per unit of risk. If you would invest  3,168  in ProShares UltraShort 20 on October 5, 2024 and sell it today you would earn a total of  494.00  from holding ProShares UltraShort 20 or generate 15.59% return on investment over 90 days.

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

ProShares UltraShort 20  vs.  First Trust Global

ProShares UltraShort

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort 20 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, ProShares UltraShort unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with ProShares UltraShort and First Trust

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

The idea behind ProShares UltraShort 20 and First Trust Global 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.