Correlation Between Cambria Tail and ProShares Short
Can any of the company-specific risk be diversified away by investing in both Cambria Tail and ProShares Short 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 Cambria Tail and ProShares Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cambria Tail Risk and ProShares Short Russell2000, you can compare the effects of market volatilities on Cambria Tail and ProShares Short 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 Cambria Tail with a short position of ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cambria Tail and ProShares Short.
Diversification Opportunities for Cambria Tail and ProShares Short
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cambria and ProShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Tail Risk and ProShares Short Russell2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short Russ and Cambria Tail 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 Cambria Tail Risk are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short Russ has no effect on the direction of Cambria Tail i.e., Cambria Tail and ProShares Short go up and down completely randomly.
Pair Corralation between Cambria Tail and ProShares Short
Given the investment horizon of 90 days Cambria Tail Risk is expected to generate 0.47 times more return on investment than ProShares Short. However, Cambria Tail Risk is 2.14 times less risky than ProShares Short. It trades about -0.11 of its potential returns per unit of risk. ProShares Short Russell2000 is currently generating about -0.22 per unit of risk. If you would invest 1,160 in Cambria Tail Risk on August 31, 2024 and sell it today you would lose (23.80) from holding Cambria Tail Risk or give up 2.05% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Cambria Tail Risk vs. ProShares Short Russell2000
Performance |
| Timeline |
| Cambria Tail Risk |
| ProShares Short Russ |
Cambria Tail and ProShares Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cambria Tail and ProShares Short
The main advantage of trading using opposite Cambria Tail and ProShares Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cambria Tail position performs unexpectedly, ProShares Short 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 Short will offset losses from the drop in ProShares Short's long position.The idea behind Cambria Tail Risk and ProShares Short Russell2000 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.| ProShares Short vs. ProShares Short QQQ | ProShares Short vs. ProShares Short Dow30 | ProShares Short vs. ProShares Short MidCap400 | ProShares Short vs. ProShares UltraShort Russell2000 |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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