Correlation Between SPDR Gold and LG DAX

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

Diversification Opportunities for SPDR Gold and LG DAX

-0.13

Correlation Coefficient

SPDR Gold  LG DAX

Good diversification

The 3 months correlation between SPDR and DES2 is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and LG DAX Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG DAX Daily 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 LG DAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG DAX Daily has no effect on the direction of SPDR Gold i.e., SPDR Gold and LG DAX go up and down completely randomly.

Pair Corralation between SPDR Gold and LG DAX

Assuming the 90 days trading horizon SPDR Gold Shares is expected to generate 0.67 times more return on investment than LG DAX. However, SPDR Gold Shares is 1.5 times less risky than LG DAX. It trades about 0.07 of its potential returns per unit of risk. LG DAX Daily is currently generating about -0.13 per unit of risk. If you would invest  23,330  in SPDR Gold Shares on October 22, 2024 and sell it today you would earn a total of  929.00  from holding SPDR Gold Shares or generate 3.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

SPDR Gold Shares  vs.  LG DAX Daily

SPDR Gold Shares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR Gold is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

LG DAX Daily

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG DAX Daily has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with SPDR Gold and LG DAX

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

The idea behind SPDR Gold Shares and LG DAX Daily 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.