Correlation Between ProShares VIX and 1x Short

Can any of the company-specific risk be diversified away by investing in both ProShares VIX and 1x 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 ProShares VIX and 1x Short 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 1x Short VIX, you can compare the effects of market volatilities on ProShares VIX and 1x 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 ProShares VIX with a short position of 1x Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares VIX and 1x Short.

Diversification Opportunities for ProShares VIX and 1x Short

0.53

Correlation Coefficient

ProShares VIX  1x Short

Very weak diversification

The 3 months correlation between ProShares and SVIX is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding ProShares VIX Mid Term and 1x Short VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1x Short VIX 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 1x Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1x Short VIX has no effect on the direction of ProShares VIX i.e., ProShares VIX and 1x Short go up and down completely randomly.

Pair Corralation between ProShares VIX and 1x Short

Given the investment horizon of 90 days ProShares VIX Mid Term is expected to generate 0.52 times more return on investment than 1x Short. However, ProShares VIX Mid Term is 1.93 times less risky than 1x Short. It trades about -0.04 of its potential returns per unit of risk. 1x Short VIX is currently generating about -0.04 per unit of risk. If you would invest  1,483  in ProShares VIX Mid Term on December 20, 2024 and sell it today you would lose (16.00) from holding ProShares VIX Mid Term or give up 1.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	20.0%
Values	Daily Returns

ProShares VIX Mid Term  vs.   1x Short VIX

ProShares VIX Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares VIX Mid Term has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ProShares VIX is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

1x Short VIX

Risk-Adjusted Performance

Very Weak

Over the last 90 days 1x Short VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with ProShares VIX and 1x Short

The main advantage of trading using opposite ProShares VIX and 1x Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares VIX position performs unexpectedly, 1x 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 1x Short will offset losses from the drop in 1x Short's long position.

The idea behind ProShares VIX Mid Term and 1x Short VIX 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.