Correlation Between ProShares Ultra and Energy Select

Can any of the company-specific risk be diversified away by investing in both ProShares Ultra and Energy Select 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 Ultra and Energy Select into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ProShares Ultra Bloomberg and Energy Select Sector, you can compare the effects of market volatilities on ProShares Ultra and Energy Select 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 Ultra with a short position of Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares Ultra and Energy Select.

Diversification Opportunities for ProShares Ultra and Energy Select

0.86

Correlation Coefficient

ProShares Ultra  Energy Select

Very poor diversification

The 3 months correlation between ProShares and Energy is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding ProShares Ultra Bloomberg and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector and ProShares Ultra 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 Ultra Bloomberg are associated (or correlated) with Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of ProShares Ultra i.e., ProShares Ultra and Energy Select go up and down completely randomly.

Pair Corralation between ProShares Ultra and Energy Select

Considering the 90-day investment horizon ProShares Ultra Bloomberg is expected to under-perform the Energy Select. In addition to that, ProShares Ultra is 2.28 times more volatile than Energy Select Sector. It trades about -0.01 of its total potential returns per unit of risk. Energy Select Sector is currently generating about 0.04 per unit of volatility. If you would invest  6,810  in Energy Select Sector on March 8, 2024 and sell it today you would earn a total of  2,178  from holding Energy Select Sector or generate 31.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

ProShares Ultra Bloomberg  vs.  Energy Select Sector

ProShares Ultra Bloomberg

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Ultra Bloomberg has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, ProShares Ultra is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Energy Select Sector

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Energy Select is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ProShares Ultra and Energy Select

The main advantage of trading using opposite ProShares Ultra and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares Ultra position performs unexpectedly, Energy Select 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 Energy Select will offset losses from the drop in Energy Select's long position.

The idea behind ProShares Ultra Bloomberg and Energy Select Sector 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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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.