Correlation Between ProShares and IQ Merger

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Can any of the company-specific risk be diversified away by investing in both ProShares and IQ Merger 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 and IQ Merger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares DJ Brookfield and IQ Merger Arbitrage, you can compare the effects of market volatilities on ProShares and IQ Merger 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 with a short position of IQ Merger. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and IQ Merger.

Diversification Opportunities for ProShares and IQ Merger

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between ProShares and MNA is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding ProShares DJ Brookfield and IQ Merger Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ Merger Arbitrage and ProShares 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 DJ Brookfield are associated (or correlated) with IQ Merger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ Merger Arbitrage has no effect on the direction of ProShares i.e., ProShares and IQ Merger go up and down completely randomly.

Pair Corralation between ProShares and IQ Merger

Given the investment horizon of 90 days ProShares DJ Brookfield is expected to generate 1.66 times more return on investment than IQ Merger. However, ProShares is 1.66 times more volatile than IQ Merger Arbitrage. It trades about 0.43 of its potential returns per unit of risk. IQ Merger Arbitrage is currently generating about 0.36 per unit of risk. If you would invest  4,484  in ProShares DJ Brookfield on April 22, 2024 and sell it today you would earn a total of  235.00  from holding ProShares DJ Brookfield or generate 5.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

ProShares DJ Brookfield  vs.  IQ Merger Arbitrage

 Performance 
       Timeline  
ProShares DJ Brookfield 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in ProShares DJ Brookfield are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, ProShares may actually be approaching a critical reversion point that can send shares even higher in August 2024.
IQ Merger Arbitrage 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in IQ Merger Arbitrage are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IQ Merger is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ProShares and IQ Merger Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ProShares and IQ Merger

The main advantage of trading using opposite ProShares and IQ Merger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares position performs unexpectedly, IQ Merger 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 IQ Merger will offset losses from the drop in IQ Merger's long position.
The idea behind ProShares DJ Brookfield and IQ Merger Arbitrage 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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