Correlation Between IShares Core and SPDR Gold

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

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

Diversification Opportunities for IShares Core and SPDR Gold

0.9

Correlation Coefficient

IShares Core  SPDR Gold

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core DAX 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 IShares Core 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 iShares Core DAX 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 IShares Core i.e., IShares Core and SPDR Gold go up and down completely randomly.

Pair Corralation between IShares Core and SPDR Gold

Assuming the 90 days trading horizon iShares Core DAX is expected to generate 1.05 times more return on investment than SPDR Gold. However, IShares Core is 1.05 times more volatile than SPDR Gold Shares. It trades about 0.28 of its potential returns per unit of risk. SPDR Gold Shares is currently generating about 0.23 per unit of risk. If you would invest  16,542  in iShares Core DAX on December 21, 2024 and sell it today you would earn a total of  2,902  from holding iShares Core DAX or generate 17.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	86.44%
Values	Daily Returns

iShares Core DAX  vs.  SPDR Gold Shares

iShares Core DAX

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core DAX are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, IShares Core reported solid returns over the last few months and may actually be approaching a breakup point.

SPDR Gold Shares

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SPDR Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Core and SPDR Gold

The main advantage of trading using opposite IShares Core and SPDR Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 iShares Core DAX 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.