Correlation Between Drum Income and ProShares UltraShort
Can any of the company-specific risk be diversified away by investing in both Drum Income 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 Drum Income and ProShares UltraShort into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Drum Income Plus and ProShares UltraShort Utilities, you can compare the effects of market volatilities on Drum Income 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 Drum Income with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Drum Income and ProShares UltraShort.
Diversification Opportunities for Drum Income and ProShares UltraShort
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Drum and ProShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Drum Income Plus and ProShares UltraShort Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and Drum Income 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 Drum Income Plus 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 Drum Income i.e., Drum Income and ProShares UltraShort go up and down completely randomly.
Pair Corralation between Drum Income and ProShares UltraShort
Given the investment horizon of 90 days Drum Income Plus is expected to under-perform the ProShares UltraShort. But the etf apears to be less risky and, when comparing its historical volatility, Drum Income Plus is 1.08 times less risky than ProShares UltraShort. The etf trades about -0.29 of its potential returns per unit of risk. The ProShares UltraShort Utilities is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest 1,358 in ProShares UltraShort Utilities on January 25, 2024 and sell it today you would lose (226.00) from holding ProShares UltraShort Utilities or give up 16.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Drum Income Plus vs. ProShares UltraShort Utilities
Performance |
| Timeline |
| Drum me Plus |
| ProShares UltraShort |
Drum Income and ProShares UltraShort Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Drum Income and ProShares UltraShort
The main advantage of trading using opposite Drum Income and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Drum Income 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 Drum Income Plus and ProShares UltraShort Utilities 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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