Correlation Between SPDR Gold and WisdomTree WTI

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

Diversification Opportunities for SPDR Gold and WisdomTree WTI

-0.45

Correlation Coefficient

SPDR Gold  WisdomTree WTI

Very good diversification

The 3 months correlation between SPDR and WisdomTree is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and WisdomTree WTI Crude in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree WTI Crude 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 WisdomTree WTI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree WTI Crude has no effect on the direction of SPDR Gold i.e., SPDR Gold and WisdomTree WTI go up and down completely randomly.

Pair Corralation between SPDR Gold and WisdomTree WTI

Assuming the 90 days trading horizon SPDR Gold Shares is expected to generate 0.57 times more return on investment than WisdomTree WTI. However, SPDR Gold Shares is 1.77 times less risky than WisdomTree WTI. It trades about 0.22 of its potential returns per unit of risk. WisdomTree WTI Crude is currently generating about -0.02 per unit of risk. If you would invest  23,076  in SPDR Gold Shares on December 25, 2024 and sell it today you would earn a total of  2,523  from holding SPDR Gold Shares or generate 10.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	86.67%
Values	Daily Returns

SPDR Gold Shares  vs.  WisdomTree WTI Crude

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 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SPDR Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree WTI Crude

Risk-Adjusted Performance

Very Weak

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

Pair Trading with SPDR Gold and WisdomTree WTI

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

The idea behind SPDR Gold Shares and WisdomTree WTI Crude 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.