Correlation Between Gold Bullion and Lyxor Treasury

Can any of the company-specific risk be diversified away by investing in both Gold Bullion and Lyxor Treasury 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 Treasury 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 Treasury 10Y, you can compare the effects of market volatilities on Gold Bullion and Lyxor Treasury 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 Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Bullion and Lyxor Treasury.

Diversification Opportunities for Gold Bullion and Lyxor Treasury

0.02

Correlation Coefficient

Gold Bullion  Lyxor Treasury

Significant diversification

The 3 months correlation between Gold and Lyxor is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Gold Bullion Securities and Lyxor Treasury 10Y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Treasury 10Y 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 Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Treasury 10Y has no effect on the direction of Gold Bullion i.e., Gold Bullion and Lyxor Treasury go up and down completely randomly.

Pair Corralation between Gold Bullion and Lyxor Treasury

Assuming the 90 days trading horizon Gold Bullion Securities is expected to generate 1.25 times more return on investment than Lyxor Treasury. However, Gold Bullion is 1.25 times more volatile than Lyxor Treasury 10Y. It trades about 0.15 of its potential returns per unit of risk. Lyxor Treasury 10Y is currently generating about -0.02 per unit of risk. If you would invest  23,156  in Gold Bullion Securities on December 2, 2024 and sell it today you would earn a total of  1,992  from holding Gold Bullion Securities or generate 8.6% return on investment over 90 days.

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

Gold Bullion Securities  vs.  Lyxor Treasury 10Y

Gold Bullion Securities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Bullion Securities are ranked lower than 11 (%) 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 April 2025.

Lyxor Treasury 10Y

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lyxor Treasury 10Y has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lyxor Treasury 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 Treasury

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

The idea behind Gold Bullion Securities and Lyxor Treasury 10Y 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.