Correlation Between ProShares Ultra and Principal Quality

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

Diversification Opportunities for ProShares Ultra and Principal Quality

0.2

Correlation Coefficient

ProShares Ultra  Principal Quality

Modest diversification

The 3 months correlation between ProShares and Principal is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Yen and Principal Quality ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Quality ETF 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 Principal Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Quality ETF has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Principal Quality go up and down completely randomly.

Pair Corralation between ProShares Ultra and Principal Quality

Considering the 90-day investment horizon ProShares Ultra Yen is expected to generate 1.3 times more return on investment than Principal Quality. However, ProShares Ultra is 1.3 times more volatile than Principal Quality ETF. It trades about -0.01 of its potential returns per unit of risk. Principal Quality ETF is currently generating about -0.05 per unit of risk. If you would invest  2,261  in ProShares Ultra Yen on November 28, 2024 and sell it today you would lose (24.00) from holding ProShares Ultra Yen or give up 1.06% of portfolio value over 90 days.

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

ProShares Ultra Yen  vs.  Principal Quality ETF

ProShares Ultra Yen

Risk-Adjusted Performance

Weak

Over the last 90 days ProShares Ultra Yen has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Principal Quality ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Quality ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Principal Quality is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ProShares Ultra and Principal Quality

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

The idea behind ProShares Ultra Yen and Principal Quality ETF 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.