Correlation Between ProShares and First Trust
Can any of the company-specific risk be diversified away by investing in both ProShares and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares SP 500 and First Trust Large, you can compare the effects of market volatilities on ProShares and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and First Trust.
Diversification Opportunities for ProShares and First Trust
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ProShares and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large 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 SP 500 are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Large has no effect on the direction of ProShares i.e., ProShares and First Trust go up and down completely randomly.
Pair Corralation between ProShares and First Trust
Given the investment horizon of 90 days ProShares is expected to generate 1.69 times less return on investment than First Trust. But when comparing it to its historical volatility, ProShares SP 500 is 1.59 times less risky than First Trust. It trades about 0.26 of its potential returns per unit of risk. First Trust Large is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 7,852 in First Trust Large on August 31, 2024 and sell it today you would earn a total of 467.00 from holding First Trust Large or generate 5.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ProShares SP 500 vs. First Trust Large
Performance |
| Timeline |
| ProShares SP 500 |
| First Trust Large |
ProShares and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares and First Trust
The main advantage of trading using opposite ProShares and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| ProShares vs. iShares Core Dividend | ProShares vs. SPDR SP Dividend | ProShares vs. Invesco SP 500 | ProShares vs. Vanguard Dividend Appreciation |
| First Trust vs. First Trust Large | First Trust vs. First Trust Large | First Trust vs. First Trust Small | First Trust vs. First Trust Mid |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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