Correlation Between Gold Bullion and SPDR SP

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

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

Diversification Opportunities for Gold Bullion and SPDR SP

0.76

Correlation Coefficient

Gold Bullion  SPDR SP

Poor diversification

The 3 months correlation between Gold and SPDR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Gold Bullion Securities and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Gold Bullion 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 Gold Bullion Securities are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of Gold Bullion i.e., Gold Bullion and SPDR SP go up and down completely randomly.

Pair Corralation between Gold Bullion and SPDR SP

Assuming the 90 days trading horizon Gold Bullion is expected to generate 1.37 times less return on investment than SPDR SP. In addition to that, Gold Bullion is 1.16 times more volatile than SPDR SP 500. It trades about 0.18 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.28 per unit of volatility. If you would invest  50,285  in SPDR SP 500 on September 12, 2024 and sell it today you would earn a total of  7,405  from holding SPDR SP 500 or generate 14.73% return on investment over 90 days.

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

Gold Bullion Securities  vs.  SPDR SP 500

Gold Bullion Securities

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Bullion Securities are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gold Bullion may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR SP 500

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SPDR SP sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Bullion and SPDR SP

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

The idea behind Gold Bullion Securities and SPDR SP 500 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.