Correlation Between SPDR Gold and First Trust

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

Diversification Opportunities for SPDR Gold and First Trust

0.5

Correlation Coefficient

SPDR Gold  First Trust

Very weak diversification

The 3 months correlation between SPDR and First is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Dow has no effect on the direction of SPDR Gold i.e., SPDR Gold and First Trust go up and down completely randomly.

Pair Corralation between SPDR Gold and First Trust

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.79 times more return on investment than First Trust. However, SPDR Gold Shares is 1.26 times less risky than First Trust. It trades about 0.18 of its potential returns per unit of risk. First Trust Dow is currently generating about -0.35 per unit of risk. If you would invest  25,994  in SPDR Gold Shares on December 5, 2024 and sell it today you would earn a total of  912.00  from holding SPDR Gold Shares or generate 3.51% return on investment over 90 days.

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

SPDR Gold Shares  vs.  First Trust Dow

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 16 (%) 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.

First Trust Dow

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Dow has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR Gold and First Trust

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

The idea behind SPDR Gold Shares and First Trust Dow 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.