Correlation Between SPDR SP and SPDR Gold

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

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

Diversification Opportunities for SPDR SP and SPDR Gold

0.79

Correlation Coefficient

SPDR SP  SPDR Gold

Poor diversification

The 3 months correlation between SPDR and SPDR is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Utilities and SPDR Gold Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold Shares and SPDR SP 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 SP Utilities are associated (or correlated) with SPDR Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Gold Shares has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR Gold go up and down completely randomly.

Pair Corralation between SPDR SP and SPDR Gold

Assuming the 90 days trading horizon SPDR SP is expected to generate 1.88 times less return on investment than SPDR Gold. In addition to that, SPDR SP is 1.23 times more volatile than SPDR Gold Shares. It trades about 0.04 of its total potential returns per unit of risk. SPDR Gold Shares is currently generating about 0.1 per unit of volatility. If you would invest  15,671  in SPDR Gold Shares on September 3, 2024 and sell it today you would earn a total of  7,522  from holding SPDR Gold Shares or generate 48.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.81%
Values	Daily Returns

SPDR SP Utilities  vs.  SPDR Gold Shares

SPDR SP Utilities

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Utilities are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, SPDR SP exhibited solid returns over the last few months and may actually be approaching a breakup point.

SPDR Gold Shares

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SPDR Gold may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and SPDR Gold

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

The idea behind SPDR SP Utilities and SPDR Gold Shares 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.