Correlation Between Amazon and ProShares UltraShort
Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and ProShares UltraShort into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and ProShares UltraShort SmallCap600, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and ProShares UltraShort.
Diversification Opportunities for Amazon and ProShares UltraShort
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Amazon and ProShares is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and ProShares UltraShort SmallCap6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and ProShares UltraShort go up and down completely randomly.
Pair Corralation between Amazon and ProShares UltraShort
Given the investment horizon of 90 days Amazon Inc is expected to under-perform the ProShares UltraShort. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.98 times less risky than ProShares UltraShort. The stock trades about -0.07 of its potential returns per unit of risk. The ProShares UltraShort SmallCap600 is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 1,846 in ProShares UltraShort SmallCap600 on January 20, 2024 and sell it today you would earn a total of 216.00 from holding ProShares UltraShort SmallCap600 or generate 11.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. ProShares UltraShort SmallCap6
Performance |
| Timeline |
| Amazon Inc |
| ProShares UltraShort |
Amazon and ProShares UltraShort Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and ProShares UltraShort
The main advantage of trading using opposite Amazon and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc and ProShares UltraShort SmallCap600 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.| ProShares UltraShort vs. ProShares Ultra SP500 | ProShares UltraShort vs. HUMANA INC | ProShares UltraShort vs. Aquagold International | ProShares UltraShort vs. Thrivent High Yield |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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