Correlation Between IPath Series and ProShares Short

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

By analyzing existing cross correlation between iPath Series B and ProShares Short Russell2000, you can compare the effects of market volatilities on IPath Series 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 IPath Series with a short position of ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPath Series and ProShares Short.

Diversification Opportunities for IPath Series and ProShares Short

0.72

Correlation Coefficient

IPath Series  ProShares Short

Poor diversification

The 3 months correlation between IPath and ProShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding iPath Series B and ProShares Short Russell2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short Russ and IPath Series 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 iPath Series B 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 Russ has no effect on the direction of IPath Series i.e., IPath Series and ProShares Short go up and down completely randomly.

Pair Corralation between IPath Series and ProShares Short

Considering the 90-day investment horizon iPath Series B is expected to generate 4.85 times more return on investment than ProShares Short. However, IPath Series is 4.85 times more volatile than ProShares Short Russell2000. It trades about 0.05 of its potential returns per unit of risk. ProShares Short Russell2000 is currently generating about 0.23 per unit of risk. If you would invest  4,289  in iPath Series B on October 8, 2024 and sell it today you would earn a total of  121.00  from holding iPath Series B or generate 2.82% return on investment over 90 days.

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

iPath Series B  vs.  ProShares Short Russell2000

iPath Series B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iPath Series B has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

ProShares Short Russ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Short Russell2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ProShares Short is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IPath Series and ProShares Short

The main advantage of trading using opposite IPath Series and ProShares Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPath Series 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 iPath Series B and ProShares Short Russell2000 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 Stocks Directory module to find actively traded stocks across global markets.