Correlation Between Gold Bullion and Lyxor CAC

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

By analyzing existing cross correlation between Gold Bullion Securities and Lyxor CAC 40, you can compare the effects of market volatilities on Gold Bullion and Lyxor CAC 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 Bullion with a short position of Lyxor CAC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Bullion and Lyxor CAC.

Diversification Opportunities for Gold Bullion and Lyxor CAC

-0.48

Correlation Coefficient

Gold Bullion  Lyxor CAC

Very good diversification

The 3 months correlation between Gold and Lyxor is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Gold Bullion Securities and Lyxor CAC 40 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor CAC 40 and Gold Bullion 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 Bullion Securities are associated (or correlated) with Lyxor CAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor CAC 40 has no effect on the direction of Gold Bullion i.e., Gold Bullion and Lyxor CAC go up and down completely randomly.

Pair Corralation between Gold Bullion and Lyxor CAC

Assuming the 90 days trading horizon Gold Bullion is expected to generate 8.48 times less return on investment than Lyxor CAC. In addition to that, Gold Bullion is 1.2 times more volatile than Lyxor CAC 40. It trades about 0.02 of its total potential returns per unit of risk. Lyxor CAC 40 is currently generating about 0.21 per unit of volatility. If you would invest  3,444  in Lyxor CAC 40 on September 29, 2024 and sell it today you would earn a total of  91.00  from holding Lyxor CAC 40 or generate 2.64% return on investment over 90 days.

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

Gold Bullion Securities  vs.  Lyxor CAC 40

Gold Bullion Securities

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Bullion Securities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gold Bullion may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lyxor CAC 40

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lyxor CAC 40 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lyxor CAC 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 Bullion and Lyxor CAC

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

The idea behind Gold Bullion Securities and Lyxor CAC 40 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.