Correlation Between ProShares UltraShort and Drum Income
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Drum Income 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 Drum Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort SmallCap600 and Drum Income Plus, you can compare the effects of market volatilities on ProShares UltraShort and Drum Income 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 Drum Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Drum Income.
Diversification Opportunities for ProShares UltraShort and Drum Income
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ProShares and Drum is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort SmallCap6 and Drum Income Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drum me Plus 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 SmallCap600 are associated (or correlated) with Drum Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drum me Plus has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Drum Income go up and down completely randomly.
Pair Corralation between ProShares UltraShort and Drum Income
Considering the 90-day investment horizon ProShares UltraShort SmallCap600 is expected to generate 0.63 times more return on investment than Drum Income. However, ProShares UltraShort SmallCap600 is 1.59 times less risky than Drum Income. It trades about 0.0 of its potential returns per unit of risk. Drum Income Plus is currently generating about -0.02 per unit of risk. If you would invest 2,552 in ProShares UltraShort SmallCap600 on January 17, 2024 and sell it today you would lose (540.68) from holding ProShares UltraShort SmallCap600 or give up 21.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
ProShares UltraShort SmallCap6 vs. Drum Income Plus
Performance |
| Timeline |
| ProShares UltraShort |
| Drum me Plus |
ProShares UltraShort and Drum Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and Drum Income
The main advantage of trading using opposite ProShares UltraShort and Drum Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, Drum Income 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 Drum Income will offset losses from the drop in Drum Income's long position.The idea behind ProShares UltraShort SmallCap600 and Drum Income Plus 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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