Correlation Between ProShares UltraShort and Western Asset

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

Diversification Opportunities for ProShares UltraShort and Western Asset

-0.91

Correlation Coefficient

ProShares UltraShort  Western Asset

Pay attention - limited upside

The 3 months correlation between ProShares and Western is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort 20 and Western Asset Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Global has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Western Asset go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Western Asset

Considering the 90-day investment horizon ProShares UltraShort 20 is expected to generate 1.7 times more return on investment than Western Asset. However, ProShares UltraShort is 1.7 times more volatile than Western Asset Global. It trades about 0.3 of its potential returns per unit of risk. Western Asset Global is currently generating about -0.09 per unit of risk. If you would invest  3,297  in ProShares UltraShort 20 on September 27, 2024 and sell it today you would earn a total of  323.00  from holding ProShares UltraShort 20 or generate 9.8% 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.  Western Asset Global

ProShares UltraShort

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort 20 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, ProShares UltraShort unveiled solid returns over the last few months and may actually be approaching a breakup point.

Western Asset Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with ProShares UltraShort and Western Asset

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

The idea behind ProShares UltraShort 20 and Western Asset 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.