Correlation Between ProShares UltraShort and First Trust

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

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

Diversification Opportunities for ProShares UltraShort and First Trust

-0.96

Correlation Coefficient

ProShares UltraShort  First Trust

Pay attention - limited upside

The 3 months correlation between ProShares and First is -0.96. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Industria and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx 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 Industrials are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Indxx has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and First Trust go up and down completely randomly.

Pair Corralation between ProShares UltraShort and First Trust

Considering the 90-day investment horizon ProShares UltraShort Industrials is expected to under-perform the First Trust. In addition to that, ProShares UltraShort is 2.42 times more volatile than First Trust Indxx. It trades about -0.04 of its total potential returns per unit of risk. First Trust Indxx is currently generating about 0.09 per unit of volatility. If you would invest  1,982  in First Trust Indxx on January 30, 2024 and sell it today you would earn a total of  710.00  from holding First Trust Indxx or generate 35.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	76.77%
Values	Daily Returns

ProShares UltraShort Industria  vs.  First Trust Indxx

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Etf's forward indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the ETF firm stakeholders.

First Trust Indxx

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with ProShares UltraShort and First Trust

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

The idea behind ProShares UltraShort Industrials and First Trust Indxx 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.