Correlation Between ProShares VIX and Cboe Validus

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

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

Diversification Opportunities for ProShares VIX and Cboe Validus

-0.73

Correlation Coefficient

ProShares VIX  Cboe Validus

Pay attention - limited upside

The 3 months correlation between ProShares and Cboe is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding ProShares VIX Mid Term and Cboe Validus SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe Validus SP and ProShares VIX 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 VIX Mid Term are associated (or correlated) with Cboe Validus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe Validus SP has no effect on the direction of ProShares VIX i.e., ProShares VIX and Cboe Validus go up and down completely randomly.

Pair Corralation between ProShares VIX and Cboe Validus

Given the investment horizon of 90 days ProShares VIX Mid Term is expected to generate 1.78 times more return on investment than Cboe Validus. However, ProShares VIX is 1.78 times more volatile than Cboe Validus SP. It trades about 0.08 of its potential returns per unit of risk. Cboe Validus SP is currently generating about -0.07 per unit of risk. If you would invest  1,457  in ProShares VIX Mid Term on December 29, 2024 and sell it today you would earn a total of  120.00  from holding ProShares VIX Mid Term or generate 8.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

ProShares VIX Mid Term  vs.  Cboe Validus SP

ProShares VIX Mid

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares VIX Mid Term are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, ProShares VIX may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cboe Validus SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cboe Validus SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Cboe Validus is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ProShares VIX and Cboe Validus

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

The idea behind ProShares VIX Mid Term and Cboe Validus SP 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..