Correlation Between ProShares Ultra and SPDR SP

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

By analyzing existing cross correlation between ProShares Ultra Yen and SPDR SP Emerging, you can compare the effects of market volatilities on ProShares Ultra and SPDR SP 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 Ultra with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and SPDR SP.

Diversification Opportunities for ProShares Ultra and SPDR SP

0.25

Correlation Coefficient

ProShares Ultra  SPDR SP

Modest diversification

The 3 months correlation between ProShares and SPDR is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Yen and SPDR SP Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Emerging and ProShares Ultra 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 Ultra Yen are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Emerging has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and SPDR SP go up and down completely randomly.

Pair Corralation between ProShares Ultra and SPDR SP

Considering the 90-day investment horizon ProShares Ultra Yen is expected to generate 1.28 times more return on investment than SPDR SP. However, ProShares Ultra is 1.28 times more volatile than SPDR SP Emerging. It trades about 0.09 of its potential returns per unit of risk. SPDR SP Emerging is currently generating about -0.02 per unit of risk. If you would invest  2,040  in ProShares Ultra Yen on December 28, 2024 and sell it today you would earn a total of  115.00  from holding ProShares Ultra Yen or generate 5.64% return on investment over 90 days.

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

ProShares Ultra Yen  vs.  SPDR SP Emerging

ProShares Ultra Yen

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Yen are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, ProShares Ultra is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

SPDR SP Emerging

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ProShares Ultra and SPDR SP

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

The idea behind ProShares Ultra Yen and SPDR SP Emerging 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.