Correlation Between Vanguard Mid and ProShares Short

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

Diversification Opportunities for Vanguard Mid and ProShares Short

-0.84

Correlation Coefficient

Vanguard Mid  ProShares Short

Pay attention - limited upside

The 3 months correlation between Vanguard and ProShares is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid 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 Mid 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 Mid 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 Mid i.e., Vanguard Mid and ProShares Short go up and down completely randomly.

Pair Corralation between Vanguard Mid and ProShares Short

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to under-perform the ProShares Short. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Mid Cap Index is 1.18 times less risky than ProShares Short. The etf trades about -0.03 of its potential returns per unit of risk. The ProShares Short Financials is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,508  in ProShares Short Financials on December 29, 2024 and sell it today you would lose (36.00) from holding ProShares Short Financials or give up 1.03% of portfolio value over 90 days.

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

Vanguard Mid Cap Index  vs.  ProShares Short Financials

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

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

The main advantage of trading using opposite Vanguard Mid and ProShares Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid 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 Mid 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.