Correlation Between MicroSectors FANG and ProShares UltraShort
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and ProShares UltraShort 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 MicroSectors FANG and ProShares UltraShort into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and ProShares UltraShort Financials, you can compare the effects of market volatilities on MicroSectors FANG and ProShares UltraShort 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 MicroSectors FANG with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and ProShares UltraShort.
Diversification Opportunities for MicroSectors FANG and ProShares UltraShort
-0.9 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between MicroSectors and ProShares is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and ProShares UltraShort Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and ProShares UltraShort go up and down completely randomly.
Pair Corralation between MicroSectors FANG and ProShares UltraShort
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 1.84 times more return on investment than ProShares UltraShort. However, MicroSectors FANG is 1.84 times more volatile than ProShares UltraShort Financials. It trades about 0.17 of its potential returns per unit of risk. ProShares UltraShort Financials is currently generating about -0.16 per unit of risk. If you would invest 34,663 in MicroSectors FANG Index on September 2, 2024 and sell it today you would earn a total of 16,137 from holding MicroSectors FANG Index or generate 46.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. ProShares UltraShort Financial
Performance |
| Timeline |
| MicroSectors FANG Index |
| ProShares UltraShort |
MicroSectors FANG and ProShares UltraShort Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and ProShares UltraShort
The main advantage of trading using opposite MicroSectors FANG and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, ProShares UltraShort 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 ProShares UltraShort will offset losses from the drop in ProShares UltraShort's long position.| MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. MicroSectors Solactive FANG | MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Technology |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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