Correlation Between HP and ProShares UltraShort
Can any of the company-specific risk be diversified away by investing in both HP 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 HP and ProShares UltraShort into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and ProShares UltraShort Bloomberg, you can compare the effects of market volatilities on HP 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 HP with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and ProShares UltraShort.
Diversification Opportunities for HP and ProShares UltraShort
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between HP and ProShares is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and ProShares UltraShort Bloomberg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and HP 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 HP 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 HP i.e., HP and ProShares UltraShort go up and down completely randomly.
Pair Corralation between HP and ProShares UltraShort
Considering the 90-day investment horizon HP Inc is expected to under-perform the ProShares UltraShort. But the stock apears to be less risky and, when comparing its historical volatility, HP Inc is 18.37 times less risky than ProShares UltraShort. The stock trades about -0.26 of its potential returns per unit of risk. The ProShares UltraShort Bloomberg is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 7,376 in ProShares UltraShort Bloomberg on January 25, 2024 and sell it today you would lose (826.00) from holding ProShares UltraShort Bloomberg or give up 11.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
HP Inc vs. ProShares UltraShort Bloomberg
Performance |
| Timeline |
| HP Inc |
| ProShares UltraShort |
HP and ProShares UltraShort Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and ProShares UltraShort
The main advantage of trading using opposite HP and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP 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 HP Inc and ProShares UltraShort Bloomberg 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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