Correlation Between SPDR Gold and United States

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

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

Diversification Opportunities for SPDR Gold and United States

0.32

Correlation Coefficient

SPDR Gold  United States

Weak diversification

The 3 months correlation between SPDR and United is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold MiniShares and United States Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Oil and SPDR Gold 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 Gold MiniShares are associated (or correlated) with United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Oil has no effect on the direction of SPDR Gold i.e., SPDR Gold and United States go up and down completely randomly.

Pair Corralation between SPDR Gold and United States

Given the investment horizon of 90 days SPDR Gold MiniShares is expected to generate 0.48 times more return on investment than United States. However, SPDR Gold MiniShares is 2.08 times less risky than United States. It trades about 0.1 of its potential returns per unit of risk. United States Oil is currently generating about 0.02 per unit of risk. If you would invest  3,568  in SPDR Gold MiniShares on September 13, 2024 and sell it today you would earn a total of  1,817  from holding SPDR Gold MiniShares or generate 50.92% return on investment over 90 days.

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

SPDR Gold MiniShares  vs.  United States Oil

SPDR Gold MiniShares

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold MiniShares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, SPDR Gold is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

United States Oil

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United States Oil are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, United States is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR Gold and United States

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

The idea behind SPDR Gold MiniShares and United States Oil 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 Stocks Directory module to find actively traded stocks across global markets.