Correlation Between SPDR SP and AdvisorShares Dorsey

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

By analyzing existing cross correlation between SPDR SP 500 and AdvisorShares Dorsey Wright, you can compare the effects of market volatilities on SPDR SP and AdvisorShares Dorsey 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 SPDR SP with a short position of AdvisorShares Dorsey. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and AdvisorShares Dorsey.

Diversification Opportunities for SPDR SP and AdvisorShares Dorsey

0.88

Correlation Coefficient

SPDR SP  AdvisorShares Dorsey

Very poor diversification

The 3 months correlation between SPDR and AdvisorShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and AdvisorShares Dorsey Wright in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Dorsey and SPDR SP 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 SPDR SP 500 are associated (or correlated) with AdvisorShares Dorsey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Dorsey has no effect on the direction of SPDR SP i.e., SPDR SP and AdvisorShares Dorsey go up and down completely randomly.

Pair Corralation between SPDR SP and AdvisorShares Dorsey

Considering the 90-day investment horizon SPDR SP 500 is expected to generate 0.87 times more return on investment than AdvisorShares Dorsey. However, SPDR SP 500 is 1.15 times less risky than AdvisorShares Dorsey. It trades about 0.0 of its potential returns per unit of risk. AdvisorShares Dorsey Wright is currently generating about -0.08 per unit of risk. If you would invest  59,682  in SPDR SP 500 on November 27, 2024 and sell it today you would lose (261.00) from holding SPDR SP 500 or give up 0.44% of portfolio value over 90 days.

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

SPDR SP 500  vs.  AdvisorShares Dorsey Wright

SPDR SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

AdvisorShares Dorsey

Risk-Adjusted Performance

Very Weak

Over the last 90 days AdvisorShares Dorsey Wright has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, AdvisorShares Dorsey is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR SP and AdvisorShares Dorsey

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

The idea behind SPDR SP 500 and AdvisorShares Dorsey Wright 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..