Correlation Between ProShares UltraShort and MicroSectors Solactive

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

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

Diversification Opportunities for ProShares UltraShort and MicroSectors Solactive

-0.79

Correlation Coefficient

ProShares UltraShort  MicroSectors Solactive

Pay attention - limited upside

The 3 months correlation between ProShares and MicroSectors is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort MSCI and MicroSectors Solactive FANG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Solactive 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 MSCI are associated (or correlated) with MicroSectors Solactive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Solactive has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and MicroSectors Solactive go up and down completely randomly.

Pair Corralation between ProShares UltraShort and MicroSectors Solactive

Considering the 90-day investment horizon ProShares UltraShort MSCI is expected to generate 0.66 times more return on investment than MicroSectors Solactive. However, ProShares UltraShort MSCI is 1.51 times less risky than MicroSectors Solactive. It trades about 0.15 of its potential returns per unit of risk. MicroSectors Solactive FANG is currently generating about -0.16 per unit of risk. If you would invest  1,313  in ProShares UltraShort MSCI on September 13, 2024 and sell it today you would earn a total of  243.00  from holding ProShares UltraShort MSCI or generate 18.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

ProShares UltraShort MSCI  vs.  MicroSectors Solactive FANG

ProShares UltraShort MSCI

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort MSCI are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, ProShares UltraShort reported solid returns over the last few months and may actually be approaching a breakup point.

MicroSectors Solactive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors Solactive FANG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of 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 current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with ProShares UltraShort and MicroSectors Solactive

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

The idea behind ProShares UltraShort MSCI and MicroSectors Solactive FANG 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.