Correlation Between AdvisorShares Hotel and AdvisorShares Restaurant

Can any of the company-specific risk be diversified away by investing in both AdvisorShares Hotel and AdvisorShares Restaurant 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 AdvisorShares Hotel and AdvisorShares Restaurant into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AdvisorShares Hotel ETF and AdvisorShares Restaurant ETF, you can compare the effects of market volatilities on AdvisorShares Hotel and AdvisorShares Restaurant 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 AdvisorShares Hotel with a short position of AdvisorShares Restaurant. Check out your portfolio center. Please also check ongoing floating volatility patterns of AdvisorShares Hotel and AdvisorShares Restaurant.

Diversification Opportunities for AdvisorShares Hotel and AdvisorShares Restaurant

0.96

Correlation Coefficient

AdvisorShares Hotel  AdvisorShares Restaurant

Almost no diversification

The 3 months correlation between AdvisorShares and AdvisorShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding AdvisorShares Hotel ETF and AdvisorShares Restaurant ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Restaurant and AdvisorShares Hotel 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 AdvisorShares Hotel ETF are associated (or correlated) with AdvisorShares Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Restaurant has no effect on the direction of AdvisorShares Hotel i.e., AdvisorShares Hotel and AdvisorShares Restaurant go up and down completely randomly.

Pair Corralation between AdvisorShares Hotel and AdvisorShares Restaurant

Given the investment horizon of 90 days AdvisorShares Hotel ETF is expected to generate 0.83 times more return on investment than AdvisorShares Restaurant. However, AdvisorShares Hotel ETF is 1.2 times less risky than AdvisorShares Restaurant. It trades about 0.04 of its potential returns per unit of risk. AdvisorShares Restaurant ETF is currently generating about -0.08 per unit of risk. If you would invest  3,253  in AdvisorShares Hotel ETF on September 20, 2024 and sell it today you would earn a total of  29.00  from holding AdvisorShares Hotel ETF or generate 0.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

AdvisorShares Hotel ETF  vs.  AdvisorShares Restaurant ETF

AdvisorShares Hotel ETF

Risk-Adjusted Performance

11 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Hotel ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, AdvisorShares Hotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AdvisorShares Restaurant

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Restaurant ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, AdvisorShares Restaurant is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with AdvisorShares Hotel and AdvisorShares Restaurant

The main advantage of trading using opposite AdvisorShares Hotel and AdvisorShares Restaurant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AdvisorShares Hotel position performs unexpectedly, AdvisorShares Restaurant 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 AdvisorShares Restaurant will offset losses from the drop in AdvisorShares Restaurant's long position.

The idea behind AdvisorShares Hotel ETF and AdvisorShares Restaurant ETF 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.