Correlation Between IShares Small and AdvisorShares Focused

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

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

Diversification Opportunities for IShares Small and AdvisorShares Focused

0.88

Correlation Coefficient

IShares Small  AdvisorShares Focused

Very poor diversification

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

Pair Corralation between IShares Small and AdvisorShares Focused

Given the investment horizon of 90 days iShares Small Cap is expected to generate 2.4 times more return on investment than AdvisorShares Focused. However, IShares Small is 2.4 times more volatile than AdvisorShares Focused Equity. It trades about 0.12 of its potential returns per unit of risk. AdvisorShares Focused Equity is currently generating about 0.16 per unit of risk. If you would invest  3,180  in iShares Small Cap on September 3, 2024 and sell it today you would earn a total of  390.00  from holding iShares Small Cap or generate 12.26% return on investment over 90 days.

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

iShares Small Cap  vs.  AdvisorShares Focused Equity

iShares Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Small Cap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, IShares Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AdvisorShares Focused

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Focused Equity are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, AdvisorShares Focused may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Small and AdvisorShares Focused

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

The idea behind iShares Small Cap and AdvisorShares Focused Equity 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 Transaction History module to view history of all your transactions and understand their impact on performance.