Correlation Between First Trust and SPDR Gold

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

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

Diversification Opportunities for First Trust and SPDR Gold

0.06

Correlation Coefficient

First Trust  SPDR Gold

Significant diversification

The 3 months correlation between First and SPDR is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow 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 First Trust 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 First Trust Dow 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 First Trust i.e., First Trust and SPDR Gold go up and down completely randomly.

Pair Corralation between First Trust and SPDR Gold

Considering the 90-day investment horizon First Trust Dow is expected to generate 1.14 times more return on investment than SPDR Gold. However, First Trust is 1.14 times more volatile than SPDR Gold Shares. It trades about 0.1 of its potential returns per unit of risk. SPDR Gold Shares is currently generating about 0.1 per unit of risk. If you would invest  20,600  in First Trust Dow on September 16, 2024 and sell it today you would earn a total of  4,816  from holding First Trust Dow or generate 23.38% return on investment over 90 days.

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

First Trust Dow  vs.  SPDR Gold Shares

First Trust Dow

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dow are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

SPDR Gold Shares

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, SPDR Gold is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and SPDR Gold

The main advantage of trading using opposite First Trust and SPDR Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Dow 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 Global Correlations module to find global opportunities by holding instruments from different markets.