Correlation Between IShares Consumer and AdvisorShares Restaurant

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

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

Diversification Opportunities for IShares Consumer and AdvisorShares Restaurant

0.64

Correlation Coefficient

IShares Consumer  AdvisorShares Restaurant

Poor diversification

The 3 months correlation between IShares and AdvisorShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Discretionary and AdvisorShares Restaurant ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Restaurant and IShares Consumer 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 iShares Consumer Discretionary 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 IShares Consumer i.e., IShares Consumer and AdvisorShares Restaurant go up and down completely randomly.

Pair Corralation between IShares Consumer and AdvisorShares Restaurant

Considering the 90-day investment horizon iShares Consumer Discretionary is expected to generate 0.73 times more return on investment than AdvisorShares Restaurant. However, iShares Consumer Discretionary is 1.38 times less risky than AdvisorShares Restaurant. It trades about -0.01 of its potential returns per unit of risk. AdvisorShares Restaurant ETF is currently generating about -0.04 per unit of risk. If you would invest  9,760  in iShares Consumer Discretionary on November 28, 2024 and sell it today you would lose (109.00) from holding iShares Consumer Discretionary or give up 1.12% of portfolio value over 90 days.

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

iShares Consumer Discretionary  vs.  AdvisorShares Restaurant ETF

iShares Consumer Dis

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Consumer Discretionary has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Consumer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

AdvisorShares Restaurant

Risk-Adjusted Performance

Very Weak

Over the last 90 days AdvisorShares Restaurant ETF has generated negative risk-adjusted returns adding no value to investors with long positions. 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 IShares Consumer and AdvisorShares Restaurant

The main advantage of trading using opposite IShares Consumer and AdvisorShares Restaurant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Consumer 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 iShares Consumer Discretionary 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.