Correlation Between ProShares UltraPro and IShares Russell

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

By analyzing existing cross correlation between ProShares UltraPro SP500 and iShares Russell 2000, you can compare the effects of market volatilities on ProShares UltraPro and IShares Russell 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 UltraPro with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraPro and IShares Russell.

Diversification Opportunities for ProShares UltraPro and IShares Russell

0.89

Correlation Coefficient

ProShares UltraPro  IShares Russell

Very poor diversification

The 3 months correlation between ProShares and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraPro SP500 and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 and ProShares UltraPro 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 UltraPro SP500 are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of ProShares UltraPro i.e., ProShares UltraPro and IShares Russell go up and down completely randomly.

Pair Corralation between ProShares UltraPro and IShares Russell

Given the investment horizon of 90 days ProShares UltraPro SP500 is expected to generate 3.09 times more return on investment than IShares Russell. However, ProShares UltraPro is 3.09 times more volatile than iShares Russell 2000. It trades about 0.12 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about 0.21 per unit of risk. If you would invest  8,199  in ProShares UltraPro SP500 on August 30, 2024 and sell it today you would earn a total of  1,340  from holding ProShares UltraPro SP500 or generate 16.34% return on investment over 90 days.

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

ProShares UltraPro SP500  vs.  iShares Russell 2000

ProShares UltraPro SP500

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraPro SP500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, ProShares UltraPro displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares Russell 2000

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with ProShares UltraPro and IShares Russell

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

The idea behind ProShares UltraPro SP500 and iShares Russell 2000 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.