Correlation Between SPDR Gold and SPDR Dow

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

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

Diversification Opportunities for SPDR Gold and SPDR Dow

0.38

Correlation Coefficient

SPDR Gold  SPDR Dow

Weak diversification

The 3 months correlation between SPDR and SPDR is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Trust and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones and SPDR Gold 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 SPDR Gold Trust are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of SPDR Gold i.e., SPDR Gold and SPDR Dow go up and down completely randomly.

Pair Corralation between SPDR Gold and SPDR Dow

Assuming the 90 days trading horizon SPDR Gold Trust is expected to generate 1.13 times more return on investment than SPDR Dow. However, SPDR Gold is 1.13 times more volatile than SPDR Dow Jones. It trades about 0.15 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.17 per unit of risk. If you would invest  393,600  in SPDR Gold Trust on September 30, 2024 and sell it today you would earn a total of  97,279  from holding SPDR Gold Trust or generate 24.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.4%
Values	Daily Returns

SPDR Gold Trust  vs.  SPDR Dow Jones

SPDR Gold Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, SPDR Gold is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR Dow Jones

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR Dow is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Gold and SPDR Dow

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

The idea behind SPDR Gold Trust and SPDR Dow Jones 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..