Correlation Between MicroSectors FANG and AdvisorShares Hotel

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

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

Diversification Opportunities for MicroSectors FANG and AdvisorShares Hotel

0.87

Correlation Coefficient

MicroSectors FANG  AdvisorShares Hotel

Very poor diversification

The 3 months correlation between MicroSectors and AdvisorShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and AdvisorShares Hotel ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Hotel ETF and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with AdvisorShares Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Hotel ETF has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and AdvisorShares Hotel go up and down completely randomly.

Pair Corralation between MicroSectors FANG and AdvisorShares Hotel

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 3.28 times more return on investment than AdvisorShares Hotel. However, MicroSectors FANG is 3.28 times more volatile than AdvisorShares Hotel ETF. It trades about 0.18 of its potential returns per unit of risk. AdvisorShares Hotel ETF is currently generating about 0.16 per unit of risk. If you would invest  51,228  in MicroSectors FANG Index on September 20, 2024 and sell it today you would earn a total of  8,412  from holding MicroSectors FANG Index or generate 16.42% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  AdvisorShares Hotel ETF

MicroSectors FANG Index

Risk-Adjusted Performance

12 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with MicroSectors FANG and AdvisorShares Hotel

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

The idea behind MicroSectors FANG Index and AdvisorShares Hotel 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.