Correlation Between ProShares Trust and Industrial Select

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

By analyzing existing cross correlation between ProShares Trust and Industrial Select Sector, you can compare the effects of market volatilities on ProShares Trust and Industrial 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 Trust with a short position of Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Trust and Industrial Select.

Diversification Opportunities for ProShares Trust and Industrial Select

-0.86

Correlation Coefficient

ProShares Trust  Industrial Select

Pay attention - limited upside

The 3 months correlation between ProShares and Industrial is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Trust and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Select Sector and ProShares Trust 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 Trust are associated (or correlated) with Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of ProShares Trust i.e., ProShares Trust and Industrial Select go up and down completely randomly.

Pair Corralation between ProShares Trust and Industrial Select

Given the investment horizon of 90 days ProShares Trust is expected to under-perform the Industrial Select. In addition to that, ProShares Trust is 3.83 times more volatile than Industrial Select Sector. It trades about -0.24 of its total potential returns per unit of risk. Industrial Select Sector is currently generating about 0.2 per unit of volatility. If you would invest  12,813  in Industrial Select Sector on September 3, 2024 and sell it today you would earn a total of  1,480  from holding Industrial Select Sector or generate 11.55% return on investment over 90 days.

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

ProShares Trust   vs.  Industrial Select Sector

ProShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the Etf traders.

Industrial Select Sector

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Industrial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ProShares Trust and Industrial Select

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

The idea behind ProShares Trust and Industrial Select Sector 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.