Correlation Between Vanguard Total and ProShares

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

By analyzing existing cross correlation between Vanguard Total Bond and ProShares SP 500, you can compare the effects of market volatilities on Vanguard Total and ProShares 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 Vanguard Total with a short position of ProShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and ProShares.

Diversification Opportunities for Vanguard Total and ProShares

-0.56

Correlation Coefficient

Vanguard Total  ProShares

Excellent diversification

The 3 months correlation between Vanguard and ProShares is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and ProShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares SP 500 and Vanguard Total 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 Vanguard Total Bond are associated (or correlated) with ProShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares SP 500 has no effect on the direction of Vanguard Total i.e., Vanguard Total and ProShares go up and down completely randomly.

Pair Corralation between Vanguard Total and ProShares

Considering the 90-day investment horizon Vanguard Total is expected to generate 4.71 times less return on investment than ProShares. But when comparing it to its historical volatility, Vanguard Total Bond is 2.15 times less risky than ProShares. It trades about 0.07 of its potential returns per unit of risk. ProShares SP 500 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,794  in ProShares SP 500 on September 14, 2024 and sell it today you would earn a total of  1,733  from holding ProShares SP 500 or generate 36.15% return on investment over 90 days.

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

Vanguard Total Bond  vs.  ProShares SP 500

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

ProShares SP 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, ProShares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Total and ProShares

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

The idea behind Vanguard Total Bond and ProShares SP 500 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.