Correlation Between ProShares Ultra and Davis Select

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

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

Diversification Opportunities for ProShares Ultra and Davis Select

0.65

Correlation Coefficient

ProShares Ultra  Davis Select

Poor diversification

The 3 months correlation between ProShares and Davis is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Semiconductors and Davis Select Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Worldwide 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 Semiconductors are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Worldwide has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Davis Select go up and down completely randomly.

Pair Corralation between ProShares Ultra and Davis Select

Considering the 90-day investment horizon ProShares Ultra Semiconductors is expected to generate 4.05 times more return on investment than Davis Select. However, ProShares Ultra is 4.05 times more volatile than Davis Select Worldwide. It trades about 0.12 of its potential returns per unit of risk. Davis Select Worldwide is currently generating about 0.09 per unit of risk. If you would invest  779.00  in ProShares Ultra Semiconductors on September 18, 2024 and sell it today you would earn a total of  5,769  from holding ProShares Ultra Semiconductors or generate 740.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

ProShares Ultra Semiconductors  vs.  Davis Select Worldwide

ProShares Ultra Semi

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Semiconductors are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ProShares Ultra exhibited solid returns over the last few months and may actually be approaching a breakup point.

Davis Select Worldwide

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Worldwide are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares Ultra and Davis Select

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

The idea behind ProShares Ultra Semiconductors and Davis Select Worldwide 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.