Correlation Between MicroSectors Big and ProShares UltraShort

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

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

Diversification Opportunities for MicroSectors Big and ProShares UltraShort

-0.44

Correlation Coefficient

MicroSectors Big  ProShares UltraShort

Very good diversification

The 3 months correlation between MicroSectors and ProShares is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Big Oil and ProShares UltraShort SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and MicroSectors Big 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 MicroSectors Big Oil 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 has no effect on the direction of MicroSectors Big i.e., MicroSectors Big and ProShares UltraShort go up and down completely randomly.

Pair Corralation between MicroSectors Big and ProShares UltraShort

Given the investment horizon of 90 days MicroSectors Big Oil is expected to under-perform the ProShares UltraShort. In addition to that, MicroSectors Big is 1.93 times more volatile than ProShares UltraShort SP500. It trades about -0.33 of its total potential returns per unit of risk. ProShares UltraShort SP500 is currently generating about 0.1 per unit of volatility. If you would invest  2,536  in ProShares UltraShort SP500 on February 5, 2024 and sell it today you would earn a total of  89.00  from holding ProShares UltraShort SP500 or generate 3.51% return on investment over 90 days.

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

MicroSectors Big Oil  vs.  ProShares UltraShort SP500

MicroSectors Big Oil

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Big Oil are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, MicroSectors Big unveiled solid returns over the last few months and may actually be approaching a breakup point.

ProShares UltraShort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares UltraShort SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MicroSectors Big and ProShares UltraShort

The main advantage of trading using opposite MicroSectors Big and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Big 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 MicroSectors Big Oil and ProShares UltraShort SP500 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.