Correlation Between Invesco DB and IShares Gold

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

By analyzing existing cross correlation between Invesco DB Agriculture and iShares Gold Trust, you can compare the effects of market volatilities on Invesco DB and IShares 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 Invesco DB with a short position of IShares Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DB and IShares Gold.

Diversification Opportunities for Invesco DB and IShares Gold

-0.2

Correlation Coefficient

Invesco DB  IShares Gold

Good diversification

The 3 months correlation between Invesco and IShares is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Agriculture and iShares Gold Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Gold Trust and Invesco DB 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 Invesco DB Agriculture are associated (or correlated) with IShares Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Gold Trust has no effect on the direction of Invesco DB i.e., Invesco DB and IShares Gold go up and down completely randomly.

Pair Corralation between Invesco DB and IShares Gold

Considering the 90-day investment horizon Invesco DB Agriculture is expected to generate 0.56 times more return on investment than IShares Gold. However, Invesco DB Agriculture is 1.78 times less risky than IShares Gold. It trades about 0.49 of its potential returns per unit of risk. iShares Gold Trust is currently generating about 0.06 per unit of risk. If you would invest  2,608  in Invesco DB Agriculture on September 19, 2024 and sell it today you would earn a total of  163.00  from holding Invesco DB Agriculture or generate 6.25% return on investment over 90 days.

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

Invesco DB Agriculture  vs.  iShares Gold Trust

Invesco DB Agriculture

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Agriculture are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Gold Trust

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Invesco DB and IShares Gold

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

The idea behind Invesco DB Agriculture and iShares Gold Trust 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.