Correlation Between GM and ProShares UltraShort
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and ProShares UltraShort into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and ProShares UltraShort Basic, you can compare the effects of market volatilities on GM 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 GM with a short position of ProShares UltraShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and ProShares UltraShort.
Diversification Opportunities for GM and ProShares UltraShort
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and ProShares is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ProShares UltraShort Basic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort and GM 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 General Motors 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 GM i.e., GM and ProShares UltraShort go up and down completely randomly.
Pair Corralation between GM and ProShares UltraShort
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.2 times more return on investment than ProShares UltraShort. However, GM is 1.2 times more volatile than ProShares UltraShort Basic. It trades about 0.13 of its potential returns per unit of risk. ProShares UltraShort Basic is currently generating about -0.07 per unit of risk. If you would invest 2,879 in General Motors on September 1, 2024 and sell it today you would earn a total of 2,680 from holding General Motors or generate 93.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. ProShares UltraShort Basic
Performance |
| Timeline |
| General Motors |
| ProShares UltraShort |
GM and ProShares UltraShort Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and ProShares UltraShort
The main advantage of trading using opposite GM and ProShares UltraShort positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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.The idea behind General Motors and ProShares UltraShort Basic 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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