Correlation Between SPDR Gold and Aluminum Futures

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

By analyzing existing cross correlation between SPDR Gold Shares and Aluminum Futures, you can compare the effects of market volatilities on SPDR Gold and Aluminum Futures 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 Aluminum Futures. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Gold and Aluminum Futures.

Diversification Opportunities for SPDR Gold and Aluminum Futures

0.61

Correlation Coefficient

SPDR Gold  Aluminum Futures

Poor diversification

The 3 months correlation between SPDR and Aluminum is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and Aluminum Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminum Futures 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 Shares are associated (or correlated) with Aluminum Futures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminum Futures has no effect on the direction of SPDR Gold i.e., SPDR Gold and Aluminum Futures go up and down completely randomly.

Pair Corralation between SPDR Gold and Aluminum Futures

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.82 times more return on investment than Aluminum Futures. However, SPDR Gold Shares is 1.22 times less risky than Aluminum Futures. It trades about 0.11 of its potential returns per unit of risk. Aluminum Futures is currently generating about -0.09 per unit of risk. If you would invest  25,805  in SPDR Gold Shares on December 1, 2024 and sell it today you would earn a total of  522.00  from holding SPDR Gold Shares or generate 2.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

SPDR Gold Shares  vs.  Aluminum Futures

SPDR Gold Shares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal essential indicators, SPDR Gold may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Aluminum Futures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aluminum Futures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Aluminum Futures is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR Gold and Aluminum Futures

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

The idea behind SPDR Gold Shares and Aluminum Futures 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.