Correlation Between AdvisorShares Restaurant and Defiance Hotel
Can any of the company-specific risk be diversified away by investing in both AdvisorShares Restaurant and Defiance 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 AdvisorShares Restaurant and Defiance Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AdvisorShares Restaurant ETF and Defiance Hotel Airline, you can compare the effects of market volatilities on AdvisorShares Restaurant and Defiance 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 AdvisorShares Restaurant with a short position of Defiance Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of AdvisorShares Restaurant and Defiance Hotel.
Diversification Opportunities for AdvisorShares Restaurant and Defiance Hotel
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between AdvisorShares and Defiance is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding AdvisorShares Restaurant ETF and Defiance Hotel Airline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defiance Hotel Airline and AdvisorShares Restaurant 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 Restaurant ETF are associated (or correlated) with Defiance Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defiance Hotel Airline has no effect on the direction of AdvisorShares Restaurant i.e., AdvisorShares Restaurant and Defiance Hotel go up and down completely randomly.
Pair Corralation between AdvisorShares Restaurant and Defiance Hotel
Given the investment horizon of 90 days AdvisorShares Restaurant is expected to generate 1.02 times less return on investment than Defiance Hotel. In addition to that, AdvisorShares Restaurant is 1.3 times more volatile than Defiance Hotel Airline. It trades about 0.33 of its total potential returns per unit of risk. Defiance Hotel Airline is currently generating about 0.44 per unit of volatility. If you would invest 2,456 in Defiance Hotel Airline on September 5, 2024 and sell it today you would earn a total of 247.00 from holding Defiance Hotel Airline or generate 10.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
AdvisorShares Restaurant ETF vs. Defiance Hotel Airline
Performance |
| Timeline |
| AdvisorShares Restaurant |
| Defiance Hotel Airline |
AdvisorShares Restaurant and Defiance Hotel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AdvisorShares Restaurant and Defiance Hotel
The main advantage of trading using opposite AdvisorShares Restaurant and Defiance Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AdvisorShares Restaurant position performs unexpectedly, Defiance 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 Defiance Hotel will offset losses from the drop in Defiance Hotel's long position.The idea behind AdvisorShares Restaurant ETF and Defiance Hotel Airline 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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Check out your portfolio center.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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