Correlation Between ProShares Ultra and Invesco DB

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

By analyzing existing cross correlation between ProShares Ultra Consumer and Invesco DB Dollar, you can compare the effects of market volatilities on ProShares Ultra and Invesco DB 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 Ultra with a short position of Invesco DB. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and Invesco DB.

Diversification Opportunities for ProShares Ultra and Invesco DB

0.85

Correlation Coefficient

ProShares Ultra  Invesco DB

Very poor diversification

The 3 months correlation between ProShares and Invesco is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Consumer and Invesco DB Dollar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Dollar and ProShares Ultra 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 Ultra Consumer are associated (or correlated) with Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Dollar has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Invesco DB go up and down completely randomly.

Pair Corralation between ProShares Ultra and Invesco DB

Considering the 90-day investment horizon ProShares Ultra Consumer is expected to generate 5.77 times more return on investment than Invesco DB. However, ProShares Ultra is 5.77 times more volatile than Invesco DB Dollar. It trades about 0.17 of its potential returns per unit of risk. Invesco DB Dollar is currently generating about 0.3 per unit of risk. If you would invest  4,226  in ProShares Ultra Consumer on September 30, 2024 and sell it today you would earn a total of  1,196  from holding ProShares Ultra Consumer or generate 28.3% return on investment over 90 days.

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

ProShares Ultra Consumer  vs.  Invesco DB Dollar

ProShares Ultra Consumer

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Consumer are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, ProShares Ultra exhibited solid returns over the last few months and may actually be approaching a breakup point.

Invesco DB Dollar

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Dollar are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares Ultra and Invesco DB

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

The idea behind ProShares Ultra Consumer and Invesco DB Dollar 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.