Correlation Between IShares Gold and Invesco DB

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

By analyzing existing cross correlation between iShares Gold Trust and Invesco DB Precious, you can compare the effects of market volatilities on IShares Gold and Invesco DB 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 IShares Gold with a short position of Invesco DB. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Gold and Invesco DB.

Diversification Opportunities for IShares Gold and Invesco DB

1.0

Correlation Coefficient

IShares Gold  Invesco DB

No risk reduction

The 3 months correlation between IShares and Invesco is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Gold Trust and Invesco DB Precious in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Precious and IShares 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 iShares Gold Trust are associated (or correlated) with Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Precious has no effect on the direction of IShares Gold i.e., IShares Gold and Invesco DB go up and down completely randomly.

Pair Corralation between IShares Gold and Invesco DB

Considering the 90-day investment horizon iShares Gold Trust is expected to generate 0.86 times more return on investment than Invesco DB. However, iShares Gold Trust is 1.16 times less risky than Invesco DB. It trades about 0.19 of its potential returns per unit of risk. Invesco DB Precious is currently generating about 0.15 per unit of risk. If you would invest  5,025  in iShares Gold Trust on November 28, 2024 and sell it today you would earn a total of  472.00  from holding iShares Gold Trust or generate 9.39% return on investment over 90 days.

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

iShares Gold Trust  vs.  Invesco DB Precious

iShares Gold Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Gold Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, IShares Gold may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Invesco DB Precious

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Precious are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with IShares Gold and Invesco DB

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

The idea behind iShares Gold Trust and Invesco DB Precious 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.