Correlation Between SPDR Gold and IPath Series

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

Diversification Opportunities for SPDR Gold and IPath Series

-0.16

Correlation Coefficient

SPDR Gold  IPath Series

Good diversification

The 3 months correlation between SPDR and IPath is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and iPath Series B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iPath Series B 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 IPath Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iPath Series B has no effect on the direction of SPDR Gold i.e., SPDR Gold and IPath Series go up and down completely randomly.

Pair Corralation between SPDR Gold and IPath Series

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.39 times more return on investment than IPath Series. However, SPDR Gold Shares is 2.56 times less risky than IPath Series. It trades about 0.3 of its potential returns per unit of risk. iPath Series B is currently generating about 0.03 per unit of risk. If you would invest  24,096  in SPDR Gold Shares on December 23, 2024 and sell it today you would earn a total of  3,753  from holding SPDR Gold Shares or generate 15.58% 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.  iPath Series B

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 23 (%) 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.

iPath Series B

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iPath Series B are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IPath Series is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR Gold and IPath Series

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

The idea behind SPDR Gold Shares and iPath Series B 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.