Correlation Between SPDR Gold and Invesco DB

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

Diversification Opportunities for SPDR Gold and Invesco DB

0.33

Correlation Coefficient

SPDR Gold  Invesco DB

Weak diversification

The 3 months correlation between SPDR and Invesco is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and Invesco DB Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Energy 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 Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Energy has no effect on the direction of SPDR Gold i.e., SPDR Gold and Invesco DB go up and down completely randomly.

Pair Corralation between SPDR Gold and Invesco DB

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.7 times more return on investment than Invesco DB. However, SPDR Gold Shares is 1.44 times less risky than Invesco DB. It trades about 0.32 of its potential returns per unit of risk. Invesco DB Energy is currently generating about 0.07 per unit of risk. If you would invest  24,210  in SPDR Gold Shares on December 20, 2024 and sell it today you would earn a total of  3,901  from holding SPDR Gold Shares or generate 16.11% return on investment over 90 days.

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

SPDR Gold Shares  vs.  Invesco DB Energy

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 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal essential indicators, SPDR Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Invesco DB Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Invesco DB 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 Invesco DB

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

The idea behind SPDR Gold Shares and Invesco DB Energy 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 CEOs Directory module to screen CEOs from public companies around the world.