Correlation Between GM and ProShares Ultra

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

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

Diversification Opportunities for GM and ProShares Ultra

-0.8

Correlation Coefficient

GM  ProShares Ultra

Pay attention - limited upside

The 3 months correlation between GM and ProShares is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and ProShares Ultra go up and down completely randomly.

Pair Corralation between GM and ProShares Ultra

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.55 times more return on investment than ProShares Ultra. However, GM is 1.55 times more volatile than ProShares Ultra 20. It trades about 0.08 of its potential returns per unit of risk. ProShares Ultra 20 is currently generating about -0.12 per unit of risk. If you would invest  4,803  in General Motors on September 5, 2024 and sell it today you would earn a total of  563.00  from holding General Motors or generate 11.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  ProShares Ultra 20

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Ultra 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Ultra 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with GM and ProShares Ultra

The main advantage of trading using opposite GM and ProShares Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.