Correlation Between ProShares Big and Alerian MLP

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

By analyzing existing cross correlation between ProShares Big Data and Alerian MLP ETF, you can compare the effects of market volatilities on ProShares Big and Alerian MLP 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 Big with a short position of Alerian MLP. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Big and Alerian MLP.

Diversification Opportunities for ProShares Big and Alerian MLP

0.85

Correlation Coefficient

ProShares Big  Alerian MLP

Very poor diversification

The 3 months correlation between ProShares and Alerian is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Big Data and Alerian MLP ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alerian MLP ETF and ProShares Big 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 Big Data are associated (or correlated) with Alerian MLP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alerian MLP ETF has no effect on the direction of ProShares Big i.e., ProShares Big and Alerian MLP go up and down completely randomly.

Pair Corralation between ProShares Big and Alerian MLP

Considering the 90-day investment horizon ProShares Big Data is expected to generate 1.81 times more return on investment than Alerian MLP. However, ProShares Big is 1.81 times more volatile than Alerian MLP ETF. It trades about 0.24 of its potential returns per unit of risk. Alerian MLP ETF is currently generating about 0.04 per unit of risk. If you would invest  3,537  in ProShares Big Data on September 22, 2024 and sell it today you would earn a total of  912.00  from holding ProShares Big Data or generate 25.78% return on investment over 90 days.

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

ProShares Big Data  vs.  Alerian MLP ETF

ProShares Big Data

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Big Data are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ProShares Big unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alerian MLP ETF

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alerian MLP ETF are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, Alerian MLP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ProShares Big and Alerian MLP

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

The idea behind ProShares Big Data and Alerian MLP ETF 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.