Correlation Between Davis Select and ProShares UltraShort

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

By analyzing existing cross correlation between Davis Select International and ProShares UltraShort SmallCap600, you can compare the effects of market volatilities on Davis Select and ProShares UltraShort 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 Davis Select with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Select and ProShares UltraShort.

Diversification Opportunities for Davis Select and ProShares UltraShort

-0.31

Correlation Coefficient

Davis Select  ProShares UltraShort

Very good diversification

The 3 months correlation between Davis and ProShares is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Davis Select International and ProShares UltraShort SmallCap6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and Davis Select 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 Davis Select International are associated (or correlated) with ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of Davis Select i.e., Davis Select and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Davis Select and ProShares UltraShort

Given the investment horizon of 90 days Davis Select is expected to generate 2.22 times less return on investment than ProShares UltraShort. But when comparing it to its historical volatility, Davis Select International is 2.23 times less risky than ProShares UltraShort. It trades about 0.17 of its potential returns per unit of risk. ProShares UltraShort SmallCap600 is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,797  in ProShares UltraShort SmallCap600 on January 29, 2024 and sell it today you would earn a total of  136.00  from holding ProShares UltraShort SmallCap600 or generate 7.57% return on investment over 90 days.

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

Davis Select International  vs.  ProShares UltraShort SmallCap6

Davis Select Interna

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in May 2024.

ProShares UltraShort

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort SmallCap600 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Davis Select and ProShares UltraShort

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

The idea behind Davis Select International and ProShares UltraShort SmallCap600 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.