Can any of the company-specific risk be diversified away by investing in both ProShares Short and MicroSectors FANG 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 Short and MicroSectors FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares Short SP500 and MicroSectors FANG Index, you can compare the effects of market volatilities on ProShares Short and MicroSectors FANG 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 Short with a short position of MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Short and MicroSectors FANG.
Diversification Opportunities for ProShares Short and MicroSectors FANG
The 3 months correlation between ProShares and MicroSectors is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Short SP500 and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index and ProShares Short 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 Short SP500 are associated (or correlated) with MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of ProShares Short i.e., ProShares Short and MicroSectors FANG go up and down completely randomly.
Pair Corralation between ProShares Short and MicroSectors FANG
Allowing for the 90-day total investment horizon ProShares Short SP500 is expected to generate 0.17 times more return on investment than MicroSectors FANG. However, ProShares Short SP500 is 5.91 times less risky than MicroSectors FANG. It trades about -0.05 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about -0.06 per unit of risk. If you would invest 1,220 in ProShares Short SP500 on March 5, 2024 and sell it today you would lose (27.00) from holding ProShares Short SP500 or give up 2.21% of portfolio value over 90 days.
Over the last 90 days ProShares Short SP500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, ProShares Short is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.