Correlation Between ProShares VIX and First Trust
Can any of the company-specific risk be diversified away by investing in both ProShares VIX 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 VIX 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 VIX Short Term and First Trust Alternative, you can compare the effects of market volatilities on ProShares VIX 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 VIX with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares VIX and First Trust.
Diversification Opportunities for ProShares VIX and First Trust
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between ProShares and First is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding ProShares VIX Short Term and First Trust Alternative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Alternative and ProShares VIX 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 VIX Short Term 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 Alternative has no effect on the direction of ProShares VIX i.e., ProShares VIX and First Trust go up and down completely randomly.
Pair Corralation between ProShares VIX and First Trust
Given the investment horizon of 90 days ProShares VIX Short Term is expected to under-perform the First Trust. In addition to that, ProShares VIX is 5.54 times more volatile than First Trust Alternative. It trades about -0.19 of its total potential returns per unit of risk. First Trust Alternative is currently generating about 0.06 per unit of volatility. If you would invest 2,779 in First Trust Alternative on August 30, 2024 and sell it today you would earn a total of 24.00 from holding First Trust Alternative or generate 0.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ProShares VIX Short Term vs. First Trust Alternative
Performance |
| Timeline |
| ProShares VIX Short |
| First Trust Alternative |
ProShares VIX and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares VIX and First Trust
The main advantage of trading using opposite ProShares VIX and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares VIX 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 VIX vs. ProShares VIX Mid Term | ProShares VIX vs. ProShares Short VIX | ProShares VIX vs. ProShares Ultra VIX | ProShares VIX vs. iPath Series B |
| First Trust vs. First Trust Emerging | First Trust vs. First Trust Income | First Trust vs. First Trust SSI | First Trust vs. First Trust Indxx |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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