Correlation Between Vanguard Small and ProShares Short

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

By analyzing existing cross correlation between Vanguard Small Cap Index and ProShares Short Financials, you can compare the effects of market volatilities on Vanguard Small and ProShares Short 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 Vanguard Small with a short position of ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and ProShares Short.

Diversification Opportunities for Vanguard Small and ProShares Short

-0.48

Correlation Coefficient

Vanguard Small  ProShares Short

Very good diversification

The 3 months correlation between Vanguard and ProShares is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and ProShares Short Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short Fina and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short Fina has no effect on the direction of Vanguard Small i.e., Vanguard Small and ProShares Short go up and down completely randomly.

Pair Corralation between Vanguard Small and ProShares Short

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the ProShares Short. In addition to that, Vanguard Small is 1.1 times more volatile than ProShares Short Financials. It trades about -0.14 of its total potential returns per unit of risk. ProShares Short Financials is currently generating about -0.03 per unit of volatility. If you would invest  3,368  in ProShares Short Financials on December 1, 2024 and sell it today you would lose (55.00) from holding ProShares Short Financials or give up 1.63% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  ProShares Short Financials

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

ProShares Short Fina

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares Short Financials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, ProShares Short is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Small and ProShares Short

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

The idea behind Vanguard Small Cap Index and ProShares Short Financials 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.