Correlation Between ProShares UltraPro and First Trust

Can any of the company-specific risk be diversified away by investing in both ProShares UltraPro 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 UltraPro 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 UltraPro SP500 and First Trust Cloud, you can compare the effects of market volatilities on ProShares UltraPro 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 UltraPro with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraPro and First Trust.

Diversification Opportunities for ProShares UltraPro and First Trust

0.92

Correlation Coefficient

ProShares UltraPro  First Trust

Almost no diversification

The 3 months correlation between ProShares and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraPro SP500 and First Trust Cloud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cloud and ProShares UltraPro 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 UltraPro SP500 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 Cloud has no effect on the direction of ProShares UltraPro i.e., ProShares UltraPro and First Trust go up and down completely randomly.

Pair Corralation between ProShares UltraPro and First Trust

Given the investment horizon of 90 days ProShares UltraPro is expected to generate 2.02 times less return on investment than First Trust. In addition to that, ProShares UltraPro is 1.46 times more volatile than First Trust Cloud. It trades about 0.07 of its total potential returns per unit of risk. First Trust Cloud is currently generating about 0.2 per unit of volatility. If you would invest  10,221  in First Trust Cloud on September 23, 2024 and sell it today you would earn a total of  2,101  from holding First Trust Cloud or generate 20.56% return on investment over 90 days.

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

ProShares UltraPro SP500  vs.  First Trust Cloud

ProShares UltraPro SP500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraPro SP500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, ProShares UltraPro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Cloud

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cloud are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares UltraPro and First Trust

The main advantage of trading using opposite ProShares UltraPro and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraPro 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 UltraPro SP500 and First Trust Cloud 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .