Correlation Between ProShares Trust and Vanguard World

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

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

Diversification Opportunities for ProShares Trust and Vanguard World

0.96

Correlation Coefficient

ProShares Trust  Vanguard World

Almost no diversification

The 3 months correlation between ProShares and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Trust and Vanguard World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard World and ProShares Trust 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 Trust are associated (or correlated) with Vanguard World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard World has no effect on the direction of ProShares Trust i.e., ProShares Trust and Vanguard World go up and down completely randomly.

Pair Corralation between ProShares Trust and Vanguard World

Assuming the 90 days trading horizon ProShares Trust is expected to generate 1.59 times more return on investment than Vanguard World. However, ProShares Trust is 1.59 times more volatile than Vanguard World. It trades about 0.2 of its potential returns per unit of risk. Vanguard World is currently generating about 0.21 per unit of risk. If you would invest  182,801  in ProShares Trust on September 13, 2024 and sell it today you would earn a total of  52,638  from holding ProShares Trust or generate 28.8% return on investment over 90 days.

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

ProShares Trust   vs.  Vanguard World

ProShares Trust

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, ProShares Trust showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard World

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard World are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard World showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Trust and Vanguard World

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

The idea behind ProShares Trust and Vanguard World 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 Stocks Directory module to find actively traded stocks across global markets.