Correlation Between SPDR Gold and Vanguard

Can any of the company-specific risk be diversified away by investing in both SPDR Gold and Vanguard 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 Vanguard 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 Vanguard SP 500, you can compare the effects of market volatilities on SPDR Gold and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Gold and Vanguard.

Diversification Opportunities for SPDR Gold and Vanguard

-0.49

Correlation Coefficient

SPDR Gold  Vanguard

Very good diversification

The 3 months correlation between SPDR and Vanguard is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of SPDR Gold i.e., SPDR Gold and Vanguard go up and down completely randomly.

Pair Corralation between SPDR Gold and Vanguard

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.75 times more return on investment than Vanguard. However, SPDR Gold Shares is 1.33 times less risky than Vanguard. It trades about 0.3 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.13 per unit of risk. If you would invest  23,960  in SPDR Gold Shares on October 20, 2024 and sell it today you would earn a total of  967.00  from holding SPDR Gold Shares or generate 4.04% return on investment over 90 days.

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

SPDR Gold Shares  vs.  Vanguard SP 500

SPDR Gold Shares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Gold Shares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, SPDR Gold is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard SP 500

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard 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 Vanguard

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

The idea behind SPDR Gold Shares and Vanguard SP 500 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.