Correlation Between ProShares Big and Technology Select

Can any of the company-specific risk be diversified away by investing in both ProShares Big and Technology 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 Big and Technology Select 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 Technology Select Sector, you can compare the effects of market volatilities on ProShares Big and Technology 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 Big with a short position of Technology Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Big and Technology Select.

Diversification Opportunities for ProShares Big and Technology Select

0.85

Correlation Coefficient

ProShares Big  Technology Select

Very poor diversification

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

Pair Corralation between ProShares Big and Technology Select

Considering the 90-day investment horizon ProShares Big Data is expected to generate 1.33 times more return on investment than Technology Select. However, ProShares Big is 1.33 times more volatile than Technology Select Sector. It trades about 0.26 of its potential returns per unit of risk. Technology Select Sector is currently generating about 0.08 per unit of risk. If you would invest  3,530  in ProShares Big Data on September 24, 2024 and sell it today you would earn a total of  1,029  from holding ProShares Big Data or generate 29.15% 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.  Technology Select Sector

ProShares Big Data

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Big Data are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, ProShares Big unveiled solid returns over the last few months and may actually be approaching a breakup point.

Technology Select Sector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ProShares Big and Technology Select

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

The idea behind ProShares Big Data and Technology 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.