Correlation Between AdvisorShares Hotel and Direxion Daily

Can any of the company-specific risk be diversified away by investing in both AdvisorShares Hotel and Direxion Daily 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 Direxion Daily 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 Direxion Daily Travel, you can compare the effects of market volatilities on AdvisorShares Hotel and Direxion Daily 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 Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of AdvisorShares Hotel and Direxion Daily.

Diversification Opportunities for AdvisorShares Hotel and Direxion Daily

0.99

Correlation Coefficient

AdvisorShares Hotel  Direxion Daily

No risk reduction

The 3 months correlation between AdvisorShares and Direxion is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding AdvisorShares Hotel ETF and Direxion Daily Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily Travel 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 Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily Travel has no effect on the direction of AdvisorShares Hotel i.e., AdvisorShares Hotel and Direxion Daily go up and down completely randomly.

Pair Corralation between AdvisorShares Hotel and Direxion Daily

Given the investment horizon of 90 days AdvisorShares Hotel ETF is expected to generate 0.64 times more return on investment than Direxion Daily. However, AdvisorShares Hotel ETF is 1.56 times less risky than Direxion Daily. It trades about 0.16 of its potential returns per unit of risk. Direxion Daily Travel is currently generating about 0.02 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  147.01  from holding AdvisorShares Hotel ETF or generate 4.52% 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.  Direxion Daily Travel

AdvisorShares Hotel ETF

Risk-Adjusted Performance

11 of 100

Good

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.

Direxion Daily Travel

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily Travel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Direxion Daily displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AdvisorShares Hotel and Direxion Daily

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

The idea behind AdvisorShares Hotel ETF and Direxion Daily Travel 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.