Correlation Between ProShares UltraShort and Bank of Montreal

Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Bank of Montreal 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 Bank of Montreal 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 Bank of Montreal, you can compare the effects of market volatilities on ProShares UltraShort and Bank of Montreal 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 Bank of Montreal. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Bank of Montreal.

Diversification Opportunities for ProShares UltraShort and Bank of Montreal

0.92

Correlation Coefficient

ProShares UltraShort  Bank of Montreal

Almost no diversification

The 3 months correlation between ProShares and Bank is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SP500 and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal 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 Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Bank of Montreal go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Bank of Montreal

Considering the 90-day investment horizon ProShares UltraShort SP500 is expected to generate 0.46 times more return on investment than Bank of Montreal. However, ProShares UltraShort SP500 is 2.17 times less risky than Bank of Montreal. It trades about -0.17 of its potential returns per unit of risk. Bank of Montreal is currently generating about -0.27 per unit of risk. If you would invest  2,228  in ProShares UltraShort SP500 on September 1, 2024 and sell it today you would lose (325.00) from holding ProShares UltraShort SP500 or give up 14.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

ProShares UltraShort SP500  vs.  Bank of Montreal

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 unsteady performance in the last few months, the Etf's fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Bank of Montreal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Montreal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with ProShares UltraShort and Bank of Montreal

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

The idea behind ProShares UltraShort SP500 and Bank of Montreal 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.