Correlation Between IPath Series and ProShares UltraShort

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

By analyzing existing cross correlation between iPath Series B and ProShares UltraShort Euro, you can compare the effects of market volatilities on IPath Series and ProShares UltraShort 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 IPath Series with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPath Series and ProShares UltraShort.

Diversification Opportunities for IPath Series and ProShares UltraShort

-0.71

Correlation Coefficient

IPath Series  ProShares UltraShort

Pay attention - limited upside

The 3 months correlation between IPath and ProShares is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding iPath Series B and ProShares UltraShort Euro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort Euro and IPath Series 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 iPath Series B are associated (or correlated) with ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort Euro has no effect on the direction of IPath Series i.e., IPath Series and ProShares UltraShort go up and down completely randomly.

Pair Corralation between IPath Series and ProShares UltraShort

Considering the 90-day investment horizon iPath Series B is expected to under-perform the ProShares UltraShort. In addition to that, IPath Series is 2.13 times more volatile than ProShares UltraShort Euro. It trades about -0.03 of its total potential returns per unit of risk. ProShares UltraShort Euro is currently generating about 0.18 per unit of volatility. If you would invest  3,019  in ProShares UltraShort Euro on August 30, 2024 and sell it today you would earn a total of  322.00  from holding ProShares UltraShort Euro or generate 10.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

iPath Series B  vs.  ProShares UltraShort Euro

iPath Series B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iPath Series B has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, IPath Series is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

ProShares UltraShort Euro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Euro are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, ProShares UltraShort may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IPath Series and ProShares UltraShort

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

The idea behind iPath Series B and ProShares UltraShort Euro 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .