Correlation Between Cheniere Energy and ProShares UltraShort
Can any of the company-specific risk be diversified away by investing in both Cheniere Energy 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 Cheniere Energy and ProShares UltraShort into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cheniere Energy Partners and ProShares UltraShort SP500, you can compare the effects of market volatilities on Cheniere Energy 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 Cheniere Energy with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheniere Energy and ProShares UltraShort.
Diversification Opportunities for Cheniere Energy and ProShares UltraShort
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cheniere and ProShares is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy Partners and ProShares UltraShort SP500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and Cheniere Energy 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 Cheniere Energy Partners 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 Cheniere Energy i.e., Cheniere Energy and ProShares UltraShort go up and down completely randomly.
Pair Corralation between Cheniere Energy and ProShares UltraShort
Considering the 90-day investment horizon Cheniere Energy Partners is expected to under-perform the ProShares UltraShort. But the stock apears to be less risky and, when comparing its historical volatility, Cheniere Energy Partners is 1.06 times less risky than ProShares UltraShort. The stock trades about -0.03 of its potential returns per unit of risk. The ProShares UltraShort SP500 is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 2,525 in ProShares UltraShort SP500 on January 26, 2024 and sell it today you would earn a total of 155.00 from holding ProShares UltraShort SP500 or generate 6.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Cheniere Energy Partners vs. ProShares UltraShort SP500
Performance |
| Timeline |
| Cheniere Energy Partners |
| ProShares UltraShort |
Cheniere Energy and ProShares UltraShort Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cheniere Energy and ProShares UltraShort
The main advantage of trading using opposite Cheniere Energy and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheniere Energy 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 Cheniere Energy Partners 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.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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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