Correlation Between ProShares UltraShort and McDonalds
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and McDonalds 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 ProShares UltraShort and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort Bloomberg and McDonalds, you can compare the effects of market volatilities on ProShares UltraShort and McDonalds 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 ProShares UltraShort with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and McDonalds.
Diversification Opportunities for ProShares UltraShort and McDonalds
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ProShares and McDonalds is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Bloomberg and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and ProShares UltraShort 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 ProShares UltraShort Bloomberg are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and McDonalds go up and down completely randomly.
Pair Corralation between ProShares UltraShort and McDonalds
Considering the 90-day investment horizon ProShares UltraShort Bloomberg is expected to under-perform the McDonalds. In addition to that, ProShares UltraShort is 2.01 times more volatile than McDonalds. It trades about -0.14 of its total potential returns per unit of risk. McDonalds is currently generating about -0.13 per unit of volatility. If you would invest 29,672 in McDonalds on January 21, 2024 and sell it today you would lose (2,473) from holding McDonalds or give up 8.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.44% |
| Values | Daily Returns |
ProShares UltraShort Bloomberg vs. McDonalds
Performance |
| Timeline |
| ProShares UltraShort |
| McDonalds |
ProShares UltraShort and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and McDonalds
The main advantage of trading using opposite ProShares UltraShort and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, McDonalds 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 McDonalds will offset losses from the drop in McDonalds' long position.The idea behind ProShares UltraShort Bloomberg and McDonalds 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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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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