Correlation Between Gold Bullion and Lyxor Index

Can any of the company-specific risk be diversified away by investing in both Gold Bullion and Lyxor Index 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 Index 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 Index Fund, you can compare the effects of market volatilities on Gold Bullion and Lyxor Index 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 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Bullion and Lyxor Index.

Diversification Opportunities for Gold Bullion and Lyxor Index

-0.44

Correlation Coefficient

Gold Bullion  Lyxor Index

Very good diversification

The 3 months correlation between Gold and Lyxor is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Gold Bullion Securities and Lyxor Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Index Fund 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 Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Index Fund has no effect on the direction of Gold Bullion i.e., Gold Bullion and Lyxor Index go up and down completely randomly.

Pair Corralation between Gold Bullion and Lyxor Index

Assuming the 90 days trading horizon Gold Bullion Securities is expected to generate 1.14 times more return on investment than Lyxor Index. However, Gold Bullion is 1.14 times more volatile than Lyxor Index Fund. It trades about 0.09 of its potential returns per unit of risk. Lyxor Index Fund is currently generating about -0.02 per unit of risk. If you would invest  16,105  in Gold Bullion Securities on September 26, 2024 and sell it today you would earn a total of  6,991  from holding Gold Bullion Securities or generate 43.41% 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 Index Fund

Gold Bullion Securities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Bullion Securities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Gold Bullion is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lyxor Index Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Gold Bullion Securities and Lyxor Index Fund 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.