Correlation Between Gold Bullion and UST Inc

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

Diversification Opportunities for Gold Bullion and UST Inc

0.82

Correlation Coefficient

Gold Bullion  UST Inc

Very poor diversification

The 3 months correlation between Gold and UST is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Gold Bullion Securities and Multi Units Luxembourg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multi Units Luxembourg 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 UST Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multi Units Luxembourg has no effect on the direction of Gold Bullion i.e., Gold Bullion and UST Inc go up and down completely randomly.

Pair Corralation between Gold Bullion and UST Inc

Assuming the 90 days trading horizon Gold Bullion is expected to generate 1.19 times less return on investment than UST Inc. But when comparing it to its historical volatility, Gold Bullion Securities is 1.23 times less risky than UST Inc. It trades about 0.2 of its potential returns per unit of risk. Multi Units Luxembourg is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  7,005  in Multi Units Luxembourg on September 3, 2024 and sell it today you would earn a total of  1,012  from holding Multi Units Luxembourg or generate 14.45% return on investment over 90 days.

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

Gold Bullion Securities  vs.  Multi Units Luxembourg

Gold Bullion Securities

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Bullion Securities are ranked lower than 16 (%) 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.

Multi Units Luxembourg

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Units Luxembourg are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, UST Inc sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Bullion and UST Inc

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

The idea behind Gold Bullion Securities and Multi Units Luxembourg 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.