Correlation Between ProShares UltraShort and IShares JP

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

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

Diversification Opportunities for ProShares UltraShort and IShares JP

-0.6

Correlation Coefficient

ProShares UltraShort  IShares JP

Excellent diversification

The 3 months correlation between ProShares and IShares is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort 20 and iShares JP Morgan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares JP Morgan and ProShares UltraShort 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 UltraShort 20 are associated (or correlated) with IShares JP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares JP Morgan has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and IShares JP go up and down completely randomly.

Pair Corralation between ProShares UltraShort and IShares JP

Considering the 90-day investment horizon ProShares UltraShort 20 is expected to generate 8.75 times more return on investment than IShares JP. However, ProShares UltraShort is 8.75 times more volatile than iShares JP Morgan. It trades about 0.09 of its potential returns per unit of risk. iShares JP Morgan is currently generating about 0.06 per unit of risk. If you would invest  2,977  in ProShares UltraShort 20 on September 2, 2024 and sell it today you would earn a total of  265.00  from holding ProShares UltraShort 20 or generate 8.9% return on investment over 90 days.

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

ProShares UltraShort 20  vs.  iShares JP Morgan

ProShares UltraShort

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort 20 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, ProShares UltraShort may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares JP Morgan

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares JP Morgan are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, IShares JP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ProShares UltraShort and IShares JP

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

The idea behind ProShares UltraShort 20 and iShares JP Morgan 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.