Correlation Between ProShares UltraShort and Davis Select

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

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

Diversification Opportunities for ProShares UltraShort and Davis Select

-0.31

Correlation Coefficient

ProShares UltraShort  Davis Select

Very good diversification

The 3 months correlation between ProShares and Davis is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SmallCap6 and Davis Select International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Interna 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 SmallCap600 are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Interna has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Davis Select go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Davis Select

Considering the 90-day investment horizon ProShares UltraShort is expected to generate 3.1 times less return on investment than Davis Select. In addition to that, ProShares UltraShort is 2.04 times more volatile than Davis Select International. It trades about 0.04 of its total potential returns per unit of risk. Davis Select International is currently generating about 0.22 per unit of volatility. If you would invest  1,823  in Davis Select International on January 29, 2024 and sell it today you would earn a total of  181.00  from holding Davis Select International or generate 9.93% return on investment over 90 days.

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

ProShares UltraShort SmallCap6  vs.  Davis Select International

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.

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.

Pair Trading with ProShares UltraShort and Davis Select

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

The idea behind ProShares UltraShort SmallCap600 and Davis Select International 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.