Correlation Between ProShares and IShares Core

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

By analyzing existing cross correlation between ProShares SP 500 and iShares Core SP, you can compare the effects of market volatilities on ProShares and IShares Core 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 with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and IShares Core.

Diversification Opportunities for ProShares and IShares Core

0.77

Correlation Coefficient

ProShares  IShares Core

Poor diversification

The 3 months correlation between ProShares and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP and ProShares 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 SP 500 are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of ProShares i.e., ProShares and IShares Core go up and down completely randomly.

Pair Corralation between ProShares and IShares Core

Given the investment horizon of 90 days ProShares is expected to generate 1.26 times less return on investment than IShares Core. But when comparing it to its historical volatility, ProShares SP 500 is 1.0 times less risky than IShares Core. It trades about 0.1 of its potential returns per unit of risk. iShares Core SP is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,759  in iShares Core SP on September 14, 2024 and sell it today you would earn a total of  1,860  from holding iShares Core SP or generate 23.97% return on investment over 90 days.

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

ProShares SP 500  vs.  iShares Core SP

ProShares SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, ProShares is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

iShares Core SP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ProShares and IShares Core

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

The idea behind ProShares SP 500 and iShares Core SP 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.