Correlation Between ProShares Ultra and ProShares UltraPro

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

By analyzing existing cross correlation between ProShares Ultra SP500 and ProShares UltraPro Russell2000, you can compare the effects of market volatilities on ProShares Ultra and ProShares UltraPro 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 ProShares UltraPro. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and ProShares UltraPro.

Diversification Opportunities for ProShares Ultra and ProShares UltraPro

0.89

Correlation Coefficient

ProShares Ultra  ProShares UltraPro

Very poor diversification

The 3 months correlation between ProShares and ProShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra SP500 and ProShares UltraPro Russell2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraPro 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 SP500 are associated (or correlated) with ProShares UltraPro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraPro has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and ProShares UltraPro go up and down completely randomly.

Pair Corralation between ProShares Ultra and ProShares UltraPro

Considering the 90-day investment horizon ProShares Ultra is expected to generate 2.34 times less return on investment than ProShares UltraPro. But when comparing it to its historical volatility, ProShares Ultra SP500 is 2.6 times less risky than ProShares UltraPro. It trades about 0.12 of its potential returns per unit of risk. ProShares UltraPro Russell2000 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,200  in ProShares UltraPro Russell2000 on August 30, 2024 and sell it today you would earn a total of  1,295  from holding ProShares UltraPro Russell2000 or generate 24.9% return on investment over 90 days.

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

ProShares Ultra SP500  vs.  ProShares UltraPro Russell2000

ProShares Ultra SP500

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra SP500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, ProShares Ultra may actually be approaching a critical reversion point that can send shares even higher in December 2024.

ProShares UltraPro

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraPro Russell2000 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, ProShares UltraPro showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Ultra and ProShares UltraPro

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

The idea behind ProShares Ultra SP500 and ProShares UltraPro Russell2000 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.