Correlation Between ProShares Ultra and Overlay Shares

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

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

Diversification Opportunities for ProShares Ultra and Overlay Shares

-0.75

Correlation Coefficient

ProShares Ultra  Overlay Shares

Pay attention - limited upside

The 3 months correlation between ProShares and Overlay is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Euro and Overlay Shares Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Large 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 Euro are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Large has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Overlay Shares go up and down completely randomly.

Pair Corralation between ProShares Ultra and Overlay Shares

Considering the 90-day investment horizon ProShares Ultra Euro is expected to under-perform the Overlay Shares. But the etf apears to be less risky and, when comparing its historical volatility, ProShares Ultra Euro is 1.76 times less risky than Overlay Shares. The etf trades about -0.12 of its potential returns per unit of risk. The Overlay Shares Large is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,511  in Overlay Shares Large on August 30, 2024 and sell it today you would earn a total of  306.00  from holding Overlay Shares Large or generate 6.78% return on investment over 90 days.

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

ProShares Ultra Euro  vs.  Overlay Shares Large

ProShares Ultra Euro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Ultra Euro has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Overlay Shares Large

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Large are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Overlay Shares may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with ProShares Ultra and Overlay Shares

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

The idea behind ProShares Ultra Euro and Overlay Shares Large 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.