Correlation Between IPath Series and ProShares Short

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

Diversification Opportunities for IPath Series and ProShares Short

-0.84

Correlation Coefficient

IPath Series  ProShares Short

Pay attention - limited upside

The 3 months correlation between IPath and ProShares is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding iPath Series B and ProShares Short VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short VIX 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short VIX has no effect on the direction of IPath Series i.e., IPath Series and ProShares Short go up and down completely randomly.

Pair Corralation between IPath Series and ProShares Short

Considering the 90-day investment horizon iPath Series B is expected to under-perform the ProShares Short. But the etf apears to be less risky and, when comparing its historical volatility, iPath Series B is 1.15 times less risky than ProShares Short. The etf trades about -0.03 of its potential returns per unit of risk. The ProShares Short VIX is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  5,378  in ProShares Short VIX on August 30, 2024 and sell it today you would lose (120.00) from holding ProShares Short VIX or give up 2.23% of portfolio value over 90 days.

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

iPath Series B  vs.  ProShares Short VIX

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 Short VIX

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IPath Series and ProShares Short

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

The idea behind iPath Series B and ProShares Short VIX 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.