Correlation Between Gold and Diversified Income

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

By analyzing existing cross correlation between Gold And Precious and Diversified Income Fund, you can compare the effects of market volatilities on Gold and Diversified Income 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 with a short position of Diversified Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold and Diversified Income.

Diversification Opportunities for Gold and Diversified Income

-0.06

Correlation Coefficient

Gold  Diversified Income

Good diversification

The 3 months correlation between Gold and Diversified is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Gold And Precious and Diversified Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Income and 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 Gold And Precious are associated (or correlated) with Diversified Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Income has no effect on the direction of Gold i.e., Gold and Diversified Income go up and down completely randomly.

Pair Corralation between Gold and Diversified Income

Assuming the 90 days horizon Gold And Precious is expected to under-perform the Diversified Income. In addition to that, Gold is 8.52 times more volatile than Diversified Income Fund. It trades about -0.26 of its total potential returns per unit of risk. Diversified Income Fund is currently generating about -0.01 per unit of volatility. If you would invest  965.00  in Diversified Income Fund on September 26, 2024 and sell it today you would lose (1.00) from holding Diversified Income Fund or give up 0.1% of portfolio value over 90 days.

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

Gold And Precious  vs.  Diversified Income Fund

Gold And Precious

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold And Precious has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Diversified Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Diversified Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gold and Diversified Income

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

The idea behind Gold And Precious and Diversified Income Fund 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.