Correlation Between Consumer Discretionary and ProShares Supply

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

By analyzing existing cross correlation between Consumer Discretionary Select and ProShares Supply Chain, you can compare the effects of market volatilities on Consumer Discretionary and ProShares Supply 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 Consumer Discretionary with a short position of ProShares Supply. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and ProShares Supply.

Diversification Opportunities for Consumer Discretionary and ProShares Supply

0.78

Correlation Coefficient

Consumer Discretionary  ProShares Supply

Poor diversification

The 3 months correlation between Consumer and ProShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and ProShares Supply Chain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Supply Chain and Consumer Discretionary 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 Consumer Discretionary Select are associated (or correlated) with ProShares Supply. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Supply Chain has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and ProShares Supply go up and down completely randomly.

Pair Corralation between Consumer Discretionary and ProShares Supply

Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 1.25 times more return on investment than ProShares Supply. However, Consumer Discretionary is 1.25 times more volatile than ProShares Supply Chain. It trades about 0.24 of its potential returns per unit of risk. ProShares Supply Chain is currently generating about 0.05 per unit of risk. If you would invest  18,674  in Consumer Discretionary Select on August 30, 2024 and sell it today you would earn a total of  3,330  from holding Consumer Discretionary Select or generate 17.83% return on investment over 90 days.

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

Consumer Discretionary Select  vs.  ProShares Supply Chain

Consumer Discretionary

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Supply Chain

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Supply Chain are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, ProShares Supply is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Consumer Discretionary and ProShares Supply

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

The idea behind Consumer Discretionary Select and ProShares Supply Chain 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.