Correlation Between ProShares UltraShort and Invesco DB

Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort 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 UltraShort 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 UltraShort Yen and Invesco DB Dollar, you can compare the effects of market volatilities on ProShares UltraShort 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 UltraShort with a short position of Invesco DB. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Invesco DB.

Diversification Opportunities for ProShares UltraShort and Invesco DB

0.87

Correlation Coefficient

ProShares UltraShort  Invesco DB

Very poor diversification

The 3 months correlation between ProShares and Invesco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Yen 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 UltraShort 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 UltraShort Yen 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 UltraShort i.e., ProShares UltraShort and Invesco DB go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Invesco DB

Considering the 90-day investment horizon ProShares UltraShort Yen is expected to generate 2.98 times more return on investment than Invesco DB. However, ProShares UltraShort is 2.98 times more volatile than Invesco DB Dollar. It trades about 0.07 of its potential returns per unit of risk. Invesco DB Dollar is currently generating about 0.14 per unit of risk. If you would invest  4,609  in ProShares UltraShort Yen on September 21, 2024 and sell it today you would earn a total of  87.00  from holding ProShares UltraShort Yen or generate 1.89% return on investment over 90 days.

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

ProShares UltraShort Yen  vs.  Invesco DB Dollar

ProShares UltraShort Yen

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Yen are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, ProShares UltraShort unveiled solid returns over the last few months and may actually be approaching a breakup point.

Invesco DB Dollar

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Dollar are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain 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 UltraShort and Invesco DB

The main advantage of trading using opposite ProShares UltraShort and Invesco DB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort 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 UltraShort Yen 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.