Correlation Between ProShares UltraShort and SPDR EURO

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

Diversification Opportunities for ProShares UltraShort and SPDR EURO

-0.77

Correlation Coefficient

ProShares UltraShort  SPDR EURO

Pay attention - limited upside

The 3 months correlation between ProShares and SPDR is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort 20 and SPDR EURO STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR EURO STOXX 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 SPDR EURO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR EURO STOXX has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and SPDR EURO go up and down completely randomly.

Pair Corralation between ProShares UltraShort and SPDR EURO

Considering the 90-day investment horizon ProShares UltraShort 20 is expected to under-perform the SPDR EURO. In addition to that, ProShares UltraShort is 1.33 times more volatile than SPDR EURO STOXX. It trades about -0.04 of its total potential returns per unit of risk. SPDR EURO STOXX is currently generating about 0.19 per unit of volatility. If you would invest  4,805  in SPDR EURO STOXX on December 28, 2024 and sell it today you would earn a total of  696.00  from holding SPDR EURO STOXX or generate 14.48% return on investment over 90 days.

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

ProShares UltraShort 20  vs.  SPDR EURO STOXX

ProShares UltraShort

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares UltraShort 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, ProShares UltraShort is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR EURO STOXX

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR EURO STOXX are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, SPDR EURO showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares UltraShort and SPDR EURO

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

The idea behind ProShares UltraShort 20 and SPDR EURO STOXX 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.