Correlation Between SPDR Gold and Xtrackers MSCI

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

Diversification Opportunities for SPDR Gold and Xtrackers MSCI

0.64

Correlation Coefficient

SPDR Gold  Xtrackers MSCI

Poor diversification

The 3 months correlation between SPDR and Xtrackers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and Xtrackers MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI 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 Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI has no effect on the direction of SPDR Gold i.e., SPDR Gold and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between SPDR Gold and Xtrackers MSCI

Assuming the 90 days trading horizon SPDR Gold Shares is expected to generate 0.9 times more return on investment than Xtrackers MSCI. However, SPDR Gold Shares is 1.11 times less risky than Xtrackers MSCI. It trades about 0.1 of its potential returns per unit of risk. Xtrackers MSCI is currently generating about 0.04 per unit of risk. If you would invest  16,402  in SPDR Gold Shares on October 5, 2024 and sell it today you would earn a total of  7,413  from holding SPDR Gold Shares or generate 45.2% return on investment over 90 days.

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

SPDR Gold Shares  vs.  Xtrackers MSCI

SPDR Gold Shares

Risk-Adjusted Performance

0 of 100

OK

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 comparatively fragile basic indicators, SPDR Gold may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Xtrackers MSCI

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Xtrackers MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR Gold and Xtrackers MSCI

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

The idea behind SPDR Gold Shares and Xtrackers MSCI 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.