Correlation Between ProShares Ultra and Alpha Architect

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

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

Diversification Opportunities for ProShares Ultra and Alpha Architect

-0.57

Correlation Coefficient

ProShares Ultra  Alpha Architect

Excellent diversification

The 3 months correlation between ProShares and Alpha is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra QQQ and Alpha Architect High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect High and ProShares Ultra 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 Ultra QQQ are associated (or correlated) with Alpha Architect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Architect High has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Alpha Architect go up and down completely randomly.

Pair Corralation between ProShares Ultra and Alpha Architect

Considering the 90-day investment horizon ProShares Ultra QQQ is expected to generate 6.45 times more return on investment than Alpha Architect. However, ProShares Ultra is 6.45 times more volatile than Alpha Architect High. It trades about 0.15 of its potential returns per unit of risk. Alpha Architect High is currently generating about 0.04 per unit of risk. If you would invest  9,057  in ProShares Ultra QQQ on September 2, 2024 and sell it today you would earn a total of  1,764  from holding ProShares Ultra QQQ or generate 19.48% return on investment over 90 days.

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

ProShares Ultra QQQ  vs.  Alpha Architect High

ProShares Ultra QQQ

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra QQQ are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, ProShares Ultra exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alpha Architect High

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Alpha Architect High has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Alpha Architect is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ProShares Ultra and Alpha Architect

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

The idea behind ProShares Ultra QQQ and Alpha Architect High 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.