Correlation Between ProShares UltraShort and WisdomTree Alternative

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

Diversification Opportunities for ProShares UltraShort and WisdomTree Alternative

-0.36

Correlation Coefficient

ProShares UltraShort  WisdomTree Alternative

Very good diversification

The 3 months correlation between ProShares and WisdomTree is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort 20 and WisdomTree Alternative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Alternative 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 WisdomTree Alternative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Alternative has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and WisdomTree Alternative go up and down completely randomly.

Pair Corralation between ProShares UltraShort and WisdomTree Alternative

Considering the 90-day investment horizon ProShares UltraShort 20 is expected to generate 2.18 times more return on investment than WisdomTree Alternative. However, ProShares UltraShort is 2.18 times more volatile than WisdomTree Alternative Income. It trades about 0.04 of its potential returns per unit of risk. WisdomTree Alternative Income is currently generating about 0.04 per unit of risk. If you would invest  2,587  in ProShares UltraShort 20 on October 5, 2024 and sell it today you would earn a total of  1,075  from holding ProShares UltraShort 20 or generate 41.55% return on investment over 90 days.

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

ProShares UltraShort 20  vs.  WisdomTree Alternative Income

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.

WisdomTree Alternative

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Alternative Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, WisdomTree Alternative is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ProShares UltraShort and WisdomTree Alternative

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

The idea behind ProShares UltraShort 20 and WisdomTree Alternative Income 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.