Correlation Between ProShares UltraShort and IShares IBonds

Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and IShares IBonds 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 IBonds 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 iBonds Dec, you can compare the effects of market volatilities on ProShares UltraShort and IShares IBonds 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 IBonds. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and IShares IBonds.

Diversification Opportunities for ProShares UltraShort and IShares IBonds

-0.99

Correlation Coefficient

ProShares UltraShort  IShares IBonds

Pay attention - limited upside

The 3 months correlation between ProShares and IShares is -0.99. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort 20 and iShares iBonds Dec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBonds Dec 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 IBonds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBonds Dec has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and IShares IBonds go up and down completely randomly.

Pair Corralation between ProShares UltraShort and IShares IBonds

Considering the 90-day investment horizon ProShares UltraShort 20 is expected to generate 4.4 times more return on investment than IShares IBonds. However, ProShares UltraShort is 4.4 times more volatile than iShares iBonds Dec. It trades about 0.09 of its potential returns per unit of risk. iShares iBonds Dec is currently generating about -0.07 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	Significant
Accuracy	100.0%
Values	Daily Returns

ProShares UltraShort 20  vs.  iShares iBonds Dec

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 iBonds Dec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBonds Dec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares IBonds is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ProShares UltraShort and IShares IBonds

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

The idea behind ProShares UltraShort 20 and iShares iBonds Dec 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.