Correlation Between ProShares UltraShort and Financial Select

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Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Financial 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 UltraShort and Financial Select 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 Financial Select Sector, you can compare the effects of market volatilities on ProShares UltraShort and Financial 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 UltraShort with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Financial Select.

Diversification Opportunities for ProShares UltraShort and Financial Select

-0.19
  Correlation Coefficient

Good diversification

The 3 months correlation between ProShares and Financial is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Utilities and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector 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 Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Financial Select go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Financial Select

Considering the 90-day investment horizon ProShares UltraShort is expected to generate 3.16 times less return on investment than Financial Select. In addition to that, ProShares UltraShort is 2.62 times more volatile than Financial Select Sector. It trades about 0.02 of its total potential returns per unit of risk. Financial Select Sector is currently generating about 0.14 per unit of volatility. If you would invest  3,165  in Financial Select Sector on December 29, 2023 and sell it today you would earn a total of  1,024  from holding Financial Select Sector or generate 32.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ProShares UltraShort Utilities  vs.  Financial Select Sector

 Performance 
       Timeline  
ProShares UltraShort 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days ProShares UltraShort Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.
Financial Select Sector 

Risk-Adjusted Performance

22 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in April 2024.

ProShares UltraShort and Financial Select Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ProShares UltraShort and Financial Select

The main advantage of trading using opposite ProShares UltraShort and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, Financial 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 Financial Select will offset losses from the drop in Financial Select's long position.
The idea behind ProShares UltraShort Utilities and Financial 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.
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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