Correlation Between ProShares UltraShort and 2x Long
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and 2x Long 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 2x Long into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort Financials and 2x Long VIX, you can compare the effects of market volatilities on ProShares UltraShort and 2x Long 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 2x Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and 2x Long.
Diversification Opportunities for ProShares UltraShort and 2x Long
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ProShares and UVIX is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Financial and 2x Long VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2x Long VIX 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 Financials are associated (or correlated) with 2x Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2x Long VIX has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and 2x Long go up and down completely randomly.
Pair Corralation between ProShares UltraShort and 2x Long
Considering the 90-day investment horizon ProShares UltraShort Financials is expected to generate 0.18 times more return on investment than 2x Long. However, ProShares UltraShort Financials is 5.58 times less risky than 2x Long. It trades about -0.15 of its potential returns per unit of risk. 2x Long VIX is currently generating about -0.03 per unit of risk. If you would invest 6,293 in ProShares UltraShort Financials on September 2, 2024 and sell it today you would lose (3,122) from holding ProShares UltraShort Financials or give up 49.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ProShares UltraShort Financial vs. 2x Long VIX
Performance |
| Timeline |
| ProShares UltraShort |
| 2x Long VIX |
ProShares UltraShort and 2x Long Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and 2x Long
The main advantage of trading using opposite ProShares UltraShort and 2x Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, 2x Long 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 2x Long will offset losses from the drop in 2x Long's long position.The idea behind ProShares UltraShort Financials and 2x Long VIX 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.
| 2x Long vs. 1x Short VIX | 2x Long vs. ProShares UltraShort Bloomberg | 2x Long vs. MicroSectors FANG Index | 2x Long vs. AXS TSLA Bear |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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