Correlation Between ProShares VIX and IPath Series

Can any of the company-specific risk be diversified away by investing in both ProShares VIX and IPath Series 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 IPath Series 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 iPath Series B, you can compare the effects of market volatilities on ProShares VIX and IPath Series 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 IPath Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares VIX and IPath Series.

Diversification Opportunities for ProShares VIX and IPath Series

0.91

Correlation Coefficient

ProShares VIX  IPath Series

Almost no diversification

The 3 months correlation between ProShares and IPath is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding ProShares VIX Mid Term and iPath Series B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iPath Series B 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 IPath Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iPath Series B has no effect on the direction of ProShares VIX i.e., ProShares VIX and IPath Series go up and down completely randomly.

Pair Corralation between ProShares VIX and IPath Series

Given the investment horizon of 90 days ProShares VIX Mid Term is expected to generate 0.5 times more return on investment than IPath Series. However, ProShares VIX Mid Term is 1.98 times less risky than IPath Series. It trades about -0.05 of its potential returns per unit of risk. iPath Series B is currently generating about -0.05 per unit of risk. If you would invest  2,987  in ProShares VIX Mid Term on September 22, 2024 and sell it today you would lose (1,504) from holding ProShares VIX Mid Term or give up 50.35% of portfolio value over 90 days.

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

ProShares VIX Mid Term  vs.  iPath Series B

ProShares VIX Mid

Risk-Adjusted Performance

0 of 100

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.

iPath Series B

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iPath Series B are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IPath Series may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares VIX and IPath Series

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

The idea behind ProShares VIX Mid Term and iPath Series B 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.