Correlation Between Invesco Gold and The Gold

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

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

Diversification Opportunities for Invesco Gold and The Gold

0.85

Correlation Coefficient

Invesco Gold  The Gold

Very poor diversification

The 3 months correlation between Invesco and The is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Gold Special and The Gold Bullion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Bullion and Invesco 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 Invesco Gold Special are associated (or correlated) with The Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Bullion has no effect on the direction of Invesco Gold i.e., Invesco Gold and The Gold go up and down completely randomly.

Pair Corralation between Invesco Gold and The Gold

Assuming the 90 days horizon Invesco Gold Special is expected to generate 1.84 times more return on investment than The Gold. However, Invesco Gold is 1.84 times more volatile than The Gold Bullion. It trades about 0.24 of its potential returns per unit of risk. The Gold Bullion is currently generating about 0.27 per unit of risk. If you would invest  2,601  in Invesco Gold Special on December 20, 2024 and sell it today you would earn a total of  636.00  from holding Invesco Gold Special or generate 24.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Invesco Gold Special  vs.  The Gold Bullion

Invesco Gold Special

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Gold Special are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Invesco Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Gold Bullion

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Gold Bullion are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, The Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco Gold and The Gold

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

The idea behind Invesco Gold Special and The Gold Bullion 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.