Correlation Between ProShares VIX and Invesco DB

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

By analyzing existing cross correlation between ProShares VIX Short Term and Invesco DB Dollar, you can compare the effects of market volatilities on ProShares VIX and Invesco DB 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 Invesco DB. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares VIX and Invesco DB.

Diversification Opportunities for ProShares VIX and Invesco DB

-0.53

Correlation Coefficient

ProShares VIX  Invesco DB

Excellent diversification

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

Pair Corralation between ProShares VIX and Invesco DB

Given the investment horizon of 90 days ProShares VIX Short Term is expected to generate 12.08 times more return on investment than Invesco DB. However, ProShares VIX is 12.08 times more volatile than Invesco DB Dollar. It trades about 0.03 of its potential returns per unit of risk. Invesco DB Dollar is currently generating about 0.12 per unit of risk. If you would invest  4,697  in ProShares VIX Short Term on September 22, 2024 and sell it today you would earn a total of  6.00  from holding ProShares VIX Short Term or generate 0.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

ProShares VIX Short Term  vs.  Invesco DB Dollar

ProShares VIX Short

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares VIX Short Term are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, ProShares VIX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco DB Dollar

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Dollar are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares VIX and Invesco DB

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

The idea behind ProShares VIX Short Term and Invesco DB Dollar 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.