Correlation Between SPDR Gold and IShares California

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

Diversification Opportunities for SPDR Gold and IShares California

-0.25

Correlation Coefficient

SPDR Gold  IShares California

Very good diversification

The 3 months correlation between SPDR and IShares is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and iShares California Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares California Muni 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 IShares California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares California Muni has no effect on the direction of SPDR Gold i.e., SPDR Gold and IShares California go up and down completely randomly.

Pair Corralation between SPDR Gold and IShares California

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 3.39 times more return on investment than IShares California. However, SPDR Gold is 3.39 times more volatile than iShares California Muni. It trades about 0.19 of its potential returns per unit of risk. iShares California Muni is currently generating about -0.02 per unit of risk. If you would invest  24,559  in SPDR Gold Shares on November 28, 2024 and sell it today you would earn a total of  2,344  from holding SPDR Gold Shares or generate 9.54% return on investment over 90 days.

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

SPDR Gold Shares  vs.  iShares California Muni

SPDR Gold Shares

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 14 (%) 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 March 2025.

iShares California Muni

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares California Muni has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IShares California is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR Gold and IShares California

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

The idea behind SPDR Gold Shares and iShares California Muni 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.