Correlation Between ProShares UltraShort and AdvisorShares Dorsey

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

By analyzing existing cross correlation between ProShares UltraShort SP500 and AdvisorShares Dorsey Wright, you can compare the effects of market volatilities on ProShares UltraShort and AdvisorShares Dorsey 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 AdvisorShares Dorsey. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and AdvisorShares Dorsey.

Diversification Opportunities for ProShares UltraShort and AdvisorShares Dorsey

0.53

Correlation Coefficient

ProShares UltraShort  AdvisorShares Dorsey

Very weak diversification

The 3 months correlation between ProShares and AdvisorShares is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SP500 and AdvisorShares Dorsey Wright in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Dorsey 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 SP500 are associated (or correlated) with AdvisorShares Dorsey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Dorsey has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and AdvisorShares Dorsey go up and down completely randomly.

Pair Corralation between ProShares UltraShort and AdvisorShares Dorsey

Considering the 90-day investment horizon ProShares UltraShort SP500 is expected to under-perform the AdvisorShares Dorsey. In addition to that, ProShares UltraShort is 1.29 times more volatile than AdvisorShares Dorsey Wright. It trades about -0.08 of its total potential returns per unit of risk. AdvisorShares Dorsey Wright is currently generating about 0.03 per unit of volatility. If you would invest  730.00  in AdvisorShares Dorsey Wright on March 14, 2024 and sell it today you would earn a total of  14.00  from holding AdvisorShares Dorsey Wright or generate 1.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

ProShares UltraShort SP500  vs.  AdvisorShares Dorsey Wright

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

AdvisorShares Dorsey

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Dorsey Wright are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, AdvisorShares Dorsey is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ProShares UltraShort and AdvisorShares Dorsey

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

The idea behind ProShares UltraShort SP500 and AdvisorShares Dorsey Wright 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.