Correlation Between Dow Jones and ProShares Ultra

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

By analyzing existing cross correlation between Dow Jones Industrial and ProShares Ultra 20, you can compare the effects of market volatilities on Dow Jones and ProShares Ultra 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 Dow Jones with a short position of ProShares Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and ProShares Ultra.

Diversification Opportunities for Dow Jones and ProShares Ultra

-0.72

Correlation Coefficient

Dow Jones  ProShares Ultra

Pay attention - limited upside

The 3 months correlation between Dow and ProShares is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and ProShares Ultra 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra 20 and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with ProShares Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra 20 has no effect on the direction of Dow Jones i.e., Dow Jones and ProShares Ultra go up and down completely randomly.

Pair Corralation between Dow Jones and ProShares Ultra

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.47 times more return on investment than ProShares Ultra. However, Dow Jones Industrial is 2.14 times less risky than ProShares Ultra. It trades about 0.35 of its potential returns per unit of risk. ProShares Ultra 20 is currently generating about 0.05 per unit of risk. If you would invest  4,179,460  in Dow Jones Industrial on September 5, 2024 and sell it today you would earn a total of  291,093  from holding Dow Jones Industrial or generate 6.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Dow Jones Industrial  vs.  ProShares Ultra 20

Pair Trading with Dow Jones and ProShares Ultra

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

The idea behind Dow Jones Industrial and ProShares Ultra 20 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.