Correlation Between ETFS Physical and ETFS SP

Can any of the company-specific risk be diversified away by investing in both ETFS Physical and ETFS SP 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 ETFS Physical and ETFS SP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETFS Physical Gold and ETFS SP Biotech, you can compare the effects of market volatilities on ETFS Physical and ETFS SP 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 ETFS Physical with a short position of ETFS SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETFS Physical and ETFS SP.

Diversification Opportunities for ETFS Physical and ETFS SP

-0.66

Correlation Coefficient

ETFS Physical  ETFS SP

Excellent diversification

The 3 months correlation between ETFS and ETFS is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Physical Gold and ETFS SP Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS SP Biotech and ETFS Physical 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 ETFS Physical Gold are associated (or correlated) with ETFS SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS SP Biotech has no effect on the direction of ETFS Physical i.e., ETFS Physical and ETFS SP go up and down completely randomly.

Pair Corralation between ETFS Physical and ETFS SP

Assuming the 90 days trading horizon ETFS Physical Gold is expected to generate 0.59 times more return on investment than ETFS SP. However, ETFS Physical Gold is 1.7 times less risky than ETFS SP. It trades about 0.32 of its potential returns per unit of risk. ETFS SP Biotech is currently generating about -0.08 per unit of risk. If you would invest  3,870  in ETFS Physical Gold on December 29, 2024 and sell it today you would earn a total of  650.00  from holding ETFS Physical Gold or generate 16.8% return on investment over 90 days.

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

ETFS Physical Gold  vs.  ETFS SP Biotech

ETFS Physical Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Physical Gold are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETFS Physical unveiled solid returns over the last few months and may actually be approaching a breakup point.

ETFS SP Biotech

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETFS SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with ETFS Physical and ETFS SP

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

The idea behind ETFS Physical Gold and ETFS SP Biotech 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.