ZSL’s Imperfect Nature

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The financial instrument ZSL is supposed to offer a -2 correlation for those interested in shorting silver. If silver goes up 1%, ZSL should go down 2%; it silver goes down 2%, ZSL is supposed to go up 4%. That's the plan, at least.

Over the long haul, that ratio pretty much holds, but on occasion, the ratio gets really screwy. I noticed this last week, and I decided to take it upon myself to analyze the correlation between the SLV and ZSL instruments.

From 613 observations, there was a correlation of -1.98, which is pretty much what ZSL's makers intended. But if you look at the data series, you can see how many outliers they are, which could be devastating to anyone who expects a steady -2 correlation (which is the horizontal red line). Keep this in mind when thinking of ZSL. My takeaway is simply: if you want to be "ultrashort" silver, then just short twice as much SLV as you normally would!