Correlation Between ProShares and FlexShares Quality

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

By analyzing existing cross correlation between ProShares SP 500 and FlexShares Quality Dividend, you can compare the effects of market volatilities on ProShares and FlexShares 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 with a short position of FlexShares Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and FlexShares Quality.

Diversification Opportunities for ProShares and FlexShares Quality

0.83

Correlation Coefficient

ProShares  FlexShares Quality

Very poor diversification

The 3 months correlation between ProShares and FlexShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality and ProShares 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 SP 500 are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of ProShares i.e., ProShares and FlexShares Quality go up and down completely randomly.

Pair Corralation between ProShares and FlexShares Quality

Given the investment horizon of 90 days ProShares is expected to generate 1.31 times less return on investment than FlexShares Quality. But when comparing it to its historical volatility, ProShares SP 500 is 1.57 times less risky than FlexShares Quality. It trades about 0.45 of its potential returns per unit of risk. FlexShares Quality Dividend is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  6,235  in FlexShares Quality Dividend on February 17, 2024 and sell it today you would earn a total of  347.00  from holding FlexShares Quality Dividend or generate 5.57% return on investment over 90 days.

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

ProShares SP 500  vs.  FlexShares Quality Dividend

ProShares SP 500

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, ProShares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

FlexShares Quality

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Dividend are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ProShares and FlexShares Quality

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

The idea behind ProShares SP 500 and FlexShares Quality Dividend 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 CEOs Directory module to screen CEOs from public companies around the world.