Correlation Between ProShares Ultra and Invesco DWA

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

Diversification Opportunities for ProShares Ultra and Invesco DWA

0.47

Correlation Coefficient

ProShares Ultra  Invesco DWA

Very weak diversification

The 3 months correlation between ProShares and Invesco is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Consumer and Invesco DWA Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Consumer 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 DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Consumer has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Invesco DWA go up and down completely randomly.

Pair Corralation between ProShares Ultra and Invesco DWA

Considering the 90-day investment horizon ProShares Ultra Consumer is expected to generate 1.92 times more return on investment than Invesco DWA. However, ProShares Ultra is 1.92 times more volatile than Invesco DWA Consumer. It trades about 0.21 of its potential returns per unit of risk. Invesco DWA Consumer is currently generating about 0.06 per unit of risk. If you would invest  1,704  in ProShares Ultra Consumer on December 11, 2024 and sell it today you would earn a total of  270.00  from holding ProShares Ultra Consumer or generate 15.85% return on investment over 90 days.

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

ProShares Ultra Consumer  vs.  Invesco DWA Consumer

ProShares Ultra Consumer

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Consumer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, ProShares Ultra is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco DWA Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Invesco DWA is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ProShares Ultra and Invesco DWA

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

The idea behind ProShares Ultra Consumer and Invesco DWA Consumer 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.