Correlation Between ProShares UltraShort and ProShares Ultra

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Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and ProShares Ultra 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 ProShares Ultra into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort Russell2000 and ProShares Ultra QQQ, you can compare the effects of market volatilities on ProShares UltraShort and ProShares Ultra 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 ProShares Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and ProShares Ultra.

Diversification Opportunities for ProShares UltraShort and ProShares Ultra

ProSharesProSharesDiversified AwayProSharesProSharesDiversified Away100%
-0.27
  Correlation Coefficient

Very good diversification

The 3 months correlation between ProShares and ProShares is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Russell20 and ProShares Ultra QQQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra QQQ 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 Russell2000 are associated (or correlated) with ProShares Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra QQQ has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and ProShares Ultra go up and down completely randomly.

Pair Corralation between ProShares UltraShort and ProShares Ultra

Considering the 90-day investment horizon ProShares UltraShort Russell2000 is expected to under-perform the ProShares Ultra. In addition to that, ProShares UltraShort is 1.11 times more volatile than ProShares Ultra QQQ. It trades about -0.02 of its total potential returns per unit of risk. ProShares Ultra QQQ is currently generating about 0.05 per unit of volatility. If you would invest  8,356  in ProShares Ultra QQQ on December 3, 2024 and sell it today you would earn a total of  2,195  from holding ProShares Ultra QQQ or generate 26.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ProShares UltraShort Russell20  vs.  ProShares Ultra QQQ

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -5051015
JavaScript chart by amCharts 3.21.15TWM QLD
       Timeline  
ProShares UltraShort 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Russell2000 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, ProShares UltraShort displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15JanFebMarFebMar38404244464850
ProShares Ultra QQQ 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days ProShares Ultra QQQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, ProShares Ultra is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15JanFebMarFebMar105110115120

ProShares UltraShort and ProShares Ultra Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.89-5.16-3.43-1.70.01.793.645.497.349.19 0.020.030.040.050.060.070.08
JavaScript chart by amCharts 3.21.15TWM QLD
       Returns  

Pair Trading with ProShares UltraShort and ProShares Ultra

The main advantage of trading using opposite ProShares UltraShort and ProShares Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, ProShares Ultra 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 Ultra will offset losses from the drop in ProShares Ultra's long position.
The idea behind ProShares UltraShort Russell2000 and ProShares Ultra QQQ 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.
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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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