Correlation Between AdvisorShares Dorsey and MicroSectors FANG

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

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

Diversification Opportunities for AdvisorShares Dorsey and MicroSectors FANG

-0.24

Correlation Coefficient

AdvisorShares Dorsey  MicroSectors FANG

Very good diversification

The 3 months correlation between AdvisorShares and MicroSectors is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding AdvisorShares Dorsey Wright and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index and AdvisorShares Dorsey 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 Dorsey Wright are associated (or correlated) with MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of AdvisorShares Dorsey i.e., AdvisorShares Dorsey and MicroSectors FANG go up and down completely randomly.

Pair Corralation between AdvisorShares Dorsey and MicroSectors FANG

Given the investment horizon of 90 days AdvisorShares Dorsey is expected to generate 11.57 times less return on investment than MicroSectors FANG. But when comparing it to its historical volatility, AdvisorShares Dorsey Wright is 3.56 times less risky than MicroSectors FANG. It trades about 0.03 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  31,086  in MicroSectors FANG Index on March 14, 2024 and sell it today you would earn a total of  7,620  from holding MicroSectors FANG Index or generate 24.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

AdvisorShares Dorsey Wright  vs.  MicroSectors FANG Index

AdvisorShares Dorsey

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Dorsey Wright are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, AdvisorShares Dorsey is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

MicroSectors FANG Index

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AdvisorShares Dorsey and MicroSectors FANG

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

The idea behind AdvisorShares Dorsey Wright and MicroSectors FANG Index 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.