Correlation Between Prime Securities and ProShares UltraShort

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

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

Diversification Opportunities for Prime Securities and ProShares UltraShort

-0.2

Correlation Coefficient

Prime Securities  ProShares UltraShort

Good diversification

The 3 months correlation between Prime and ProShares is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Prime Securities Limited and ProShares UltraShort SmallCap6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and Prime Securities 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 Prime Securities Limited 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 Prime Securities i.e., Prime Securities and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Prime Securities and ProShares UltraShort

Assuming the 90 days trading horizon Prime Securities Limited is expected to under-perform the ProShares UltraShort. But the stock apears to be less risky and, when comparing its historical volatility, Prime Securities Limited is 1.24 times less risky than ProShares UltraShort. The stock trades about -0.07 of its potential returns per unit of risk. The ProShares UltraShort SmallCap600 is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,872  in ProShares UltraShort SmallCap600 on February 4, 2024 and sell it today you would earn a total of  6.00  from holding ProShares UltraShort SmallCap600 or generate 0.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.36%
Values	Daily Returns

Prime Securities Limited  vs.  ProShares UltraShort SmallCap6

Prime Securities

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Securities Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Prime Securities is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort SmallCap600 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Prime Securities and ProShares UltraShort

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

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.