Correlation Between 2x Long and ProShares UltraPro

Can any of the company-specific risk be diversified away by investing in both 2x Long and ProShares UltraPro 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 2x Long and ProShares UltraPro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 2x Long VIX and ProShares UltraPro Short, you can compare the effects of market volatilities on 2x Long and ProShares UltraPro 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 2x Long with a short position of ProShares UltraPro. Check out your portfolio center. Please also check ongoing floating volatility patterns of 2x Long and ProShares UltraPro.

Diversification Opportunities for 2x Long and ProShares UltraPro

0.8

Correlation Coefficient

2x Long  ProShares UltraPro

Very poor diversification

The 3 months correlation between UVIX and ProShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding 2x Long VIX and ProShares UltraPro Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraPro Short and 2x Long 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 2x Long VIX are associated (or correlated) with ProShares UltraPro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraPro Short has no effect on the direction of 2x Long i.e., 2x Long and ProShares UltraPro go up and down completely randomly.

Pair Corralation between 2x Long and ProShares UltraPro

Given the investment horizon of 90 days 2x Long VIX is expected to generate 4.21 times more return on investment than ProShares UltraPro. However, 2x Long is 4.21 times more volatile than ProShares UltraPro Short. It trades about 0.03 of its potential returns per unit of risk. ProShares UltraPro Short is currently generating about -0.12 per unit of risk. If you would invest  461.00  in 2x Long VIX on June 29, 2024 and sell it today you would lose (9.00) from holding 2x Long VIX or give up 1.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

2x Long VIX  vs.  ProShares UltraPro Short

2x Long VIX

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 2x Long VIX are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting forward indicators, 2x Long showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares UltraPro Short

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraPro Short has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic 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.

Pair Trading with 2x Long and ProShares UltraPro

The main advantage of trading using opposite 2x Long and ProShares UltraPro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 2x Long position performs unexpectedly, ProShares UltraPro 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 UltraPro will offset losses from the drop in ProShares UltraPro's long position.

The idea behind 2x Long VIX and ProShares UltraPro Short 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.