Correlation Between SPDR Gold and IShares Trust

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

Diversification Opportunities for SPDR Gold and IShares Trust

0.14

Correlation Coefficient

SPDR Gold  IShares Trust

Average diversification

The 3 months correlation between SPDR and IShares is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of SPDR Gold i.e., SPDR Gold and IShares Trust go up and down completely randomly.

Pair Corralation between SPDR Gold and IShares Trust

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.89 times more return on investment than IShares Trust. However, SPDR Gold Shares is 1.12 times less risky than IShares Trust. It trades about 0.33 of its potential returns per unit of risk. iShares Trust is currently generating about 0.02 per unit of risk. If you would invest  24,063  in SPDR Gold Shares on December 28, 2024 and sell it today you would earn a total of  4,134  from holding SPDR Gold Shares or generate 17.18% return on investment over 90 days.

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

SPDR Gold Shares  vs.  iShares Trust

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 26 (%) 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.

iShares Trust

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR Gold and IShares Trust

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

The idea behind SPDR Gold Shares and iShares Trust 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.