Correlation Between ProShares UltraShort and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Alcoa Corp 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 Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort Utilities and Alcoa Corp, you can compare the effects of market volatilities on ProShares UltraShort and Alcoa Corp 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 Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Alcoa Corp.
Diversification Opportunities for ProShares UltraShort and Alcoa Corp
-0.72 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between ProShares and Alcoa is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Utilities and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 Utilities are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Alcoa Corp go up and down completely randomly.
Pair Corralation between ProShares UltraShort and Alcoa Corp
Considering the 90-day investment horizon ProShares UltraShort Utilities is expected to under-perform the Alcoa Corp. But the etf apears to be less risky and, when comparing its historical volatility, ProShares UltraShort Utilities is 1.12 times less risky than Alcoa Corp. The etf trades about -0.22 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 3,158 in Alcoa Corp on January 26, 2024 and sell it today you would earn a total of 450.00 from holding Alcoa Corp or generate 14.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ProShares UltraShort Utilities vs. Alcoa Corp
Performance |
| Timeline |
| ProShares UltraShort |
| Alcoa Corp |
ProShares UltraShort and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and Alcoa Corp
The main advantage of trading using opposite ProShares UltraShort and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.The idea behind ProShares UltraShort Utilities and Alcoa Corp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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