Correlation Between ProShares Ultra and First Trust

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

By analyzing existing cross correlation between ProShares Ultra Euro and First Trust EIP, you can compare the effects of market volatilities on ProShares Ultra and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and First Trust.

Diversification Opportunities for ProShares Ultra and First Trust

-0.31

Correlation Coefficient

ProShares Ultra  First Trust

Very good diversification

The 3 months correlation between ProShares and First is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Euro and First Trust EIP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust EIP 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 Euro are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust EIP has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and First Trust go up and down completely randomly.

Pair Corralation between ProShares Ultra and First Trust

Considering the 90-day investment horizon ProShares Ultra Euro is expected to under-perform the First Trust. In addition to that, ProShares Ultra is 1.24 times more volatile than First Trust EIP. It trades about -0.2 of its total potential returns per unit of risk. First Trust EIP is currently generating about -0.06 per unit of volatility. If you would invest  2,947  in First Trust EIP on October 12, 2024 and sell it today you would lose (29.00) from holding First Trust EIP or give up 0.98% of portfolio value over 90 days.

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

ProShares Ultra Euro  vs.  First Trust EIP

ProShares Ultra Euro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Ultra Euro has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

First Trust EIP

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with ProShares Ultra and First Trust

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

The idea behind ProShares Ultra Euro and First Trust EIP 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.