Correlation Between ProShares Short and ProShares UltraShort

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

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

Diversification Opportunities for ProShares Short and ProShares UltraShort

0.77

Correlation Coefficient

ProShares Short  ProShares UltraShort

Poor diversification

The 3 months correlation between ProShares and ProShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Short SmallCap600 and ProShares UltraShort SmallCap6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and ProShares Short 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 Short SmallCap600 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 ProShares Short i.e., ProShares Short and ProShares UltraShort go up and down completely randomly.

Pair Corralation between ProShares Short and ProShares UltraShort

Considering the 90-day investment horizon ProShares Short SmallCap600 is expected to generate 0.5 times more return on investment than ProShares UltraShort. However, ProShares Short SmallCap600 is 2.0 times less risky than ProShares UltraShort. It trades about -0.26 of its potential returns per unit of risk. ProShares UltraShort SmallCap600 is currently generating about -0.27 per unit of risk. If you would invest  1,668  in ProShares Short SmallCap600 on February 14, 2024 and sell it today you would lose (78.00) from holding ProShares Short SmallCap600 or give up 4.68% of portfolio value over 90 days.

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

ProShares Short SmallCap600  vs.  ProShares UltraShort SmallCap6

ProShares Short Smal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Short SmallCap600 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, ProShares Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ProShares Short and ProShares UltraShort

The main advantage of trading using opposite ProShares Short and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares Short 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 ProShares Short SmallCap600 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.