Correlation Between ProShares Ultra and MicroSectors Solactive

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

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

Diversification Opportunities for ProShares Ultra and MicroSectors Solactive

0.69

Correlation Coefficient

ProShares Ultra  MicroSectors Solactive

Poor diversification

The 3 months correlation between ProShares and MicroSectors is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Financials and MicroSectors Solactive FANG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Solactive 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 Financials are associated (or correlated) with MicroSectors Solactive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Solactive has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and MicroSectors Solactive go up and down completely randomly.

Pair Corralation between ProShares Ultra and MicroSectors Solactive

Considering the 90-day investment horizon ProShares Ultra Financials is expected to under-perform the MicroSectors Solactive. But the etf apears to be less risky and, when comparing its historical volatility, ProShares Ultra Financials is 2.71 times less risky than MicroSectors Solactive. The etf trades about -0.2 of its potential returns per unit of risk. The MicroSectors Solactive FANG is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  16,406  in MicroSectors Solactive FANG on September 27, 2024 and sell it today you would earn a total of  2,240  from holding MicroSectors Solactive FANG or generate 13.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

ProShares Ultra Financials  vs.  MicroSectors Solactive FANG

ProShares Ultra Fina

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Financials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, ProShares Ultra reported solid returns over the last few months and may actually be approaching a breakup point.

MicroSectors Solactive

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Solactive FANG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting essential indicators, MicroSectors Solactive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Ultra and MicroSectors Solactive

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

The idea behind ProShares Ultra Financials and MicroSectors Solactive FANG 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..