Correlation Between Invesco DB and ProShares VIX

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

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

Diversification Opportunities for Invesco DB and ProShares VIX

0.3

Correlation Coefficient

Invesco DB  ProShares VIX

Weak diversification

The 3 months correlation between Invesco and ProShares is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Dollar and ProShares VIX Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares VIX Short and Invesco DB 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 Invesco DB Dollar are associated (or correlated) with ProShares VIX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares VIX Short has no effect on the direction of Invesco DB i.e., Invesco DB and ProShares VIX go up and down completely randomly.

Pair Corralation between Invesco DB and ProShares VIX

Considering the 90-day investment horizon Invesco DB is expected to generate 19.24 times less return on investment than ProShares VIX. But when comparing it to its historical volatility, Invesco DB Dollar is 9.52 times less risky than ProShares VIX. It trades about 0.04 of its potential returns per unit of risk. ProShares VIX Short Term is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,179  in ProShares VIX Short Term on December 5, 2024 and sell it today you would earn a total of  666.00  from holding ProShares VIX Short Term or generate 15.94% return on investment over 90 days.

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

Invesco DB Dollar  vs.  ProShares VIX Short Term

Invesco DB Dollar

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Dollar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Invesco DB is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

ProShares VIX Short

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares VIX Short Term are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, ProShares VIX showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DB and ProShares VIX

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

The idea behind Invesco DB Dollar and ProShares VIX Short Term 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.