Correlation Between ProShares Ultra and T Rex

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

By analyzing existing cross correlation between ProShares Ultra Financials and T Rex 2X Long, you can compare the effects of market volatilities on ProShares Ultra and T Rex 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 T Rex. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and T Rex.

Diversification Opportunities for ProShares Ultra and T Rex

0.74

Correlation Coefficient

ProShares Ultra  T Rex

Poor diversification

The 3 months correlation between ProShares and NVDX is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Financials and T Rex 2X Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rex 2X 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 Financials are associated (or correlated) with T Rex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rex 2X has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and T Rex go up and down completely randomly.

Pair Corralation between ProShares Ultra and T Rex

Considering the 90-day investment horizon ProShares Ultra is expected to generate 2.02 times less return on investment than T Rex. But when comparing it to its historical volatility, ProShares Ultra Financials is 2.32 times less risky than T Rex. It trades about 0.18 of its potential returns per unit of risk. T Rex 2X Long is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,147  in T Rex 2X Long on September 2, 2024 and sell it today you would earn a total of  595.00  from holding T Rex 2X Long or generate 51.87% return on investment over 90 days.

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

ProShares Ultra Financials  vs.  T Rex 2X Long

ProShares Ultra Fina

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Ultra Financials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, ProShares Ultra reported solid returns over the last few months and may actually be approaching a breakup point.

T Rex 2X

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in T Rex 2X Long are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental indicators, T Rex showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProShares Ultra and T Rex

The main advantage of trading using opposite ProShares Ultra and T Rex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares Ultra position performs unexpectedly, T Rex 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 T Rex will offset losses from the drop in T Rex's long position.

The idea behind ProShares Ultra Financials and T Rex 2X Long 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.