Correlation Between IShares Core and SPDR Gold

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

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

Diversification Opportunities for IShares Core and SPDR Gold

-0.08

Correlation Coefficient

IShares Core  SPDR Gold

Good diversification

The 3 months correlation between IShares and SPDR is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and SPDR Gold Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold Shares and IShares Core 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 Core MSCI are associated (or correlated) with SPDR Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Gold Shares has no effect on the direction of IShares Core i.e., IShares Core and SPDR Gold go up and down completely randomly.

Pair Corralation between IShares Core and SPDR Gold

Assuming the 90 days trading horizon IShares Core is expected to generate 2.02 times less return on investment than SPDR Gold. In addition to that, IShares Core is 1.09 times more volatile than SPDR Gold Shares. It trades about 0.04 of its total potential returns per unit of risk. SPDR Gold Shares is currently generating about 0.09 per unit of volatility. If you would invest  16,271  in SPDR Gold Shares on September 30, 2024 and sell it today you would earn a total of  6,805  from holding SPDR Gold Shares or generate 41.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.01%
Values	Daily Returns

iShares Core MSCI  vs.  SPDR Gold Shares

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Gold Shares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SPDR Gold may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Core and SPDR Gold

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

The idea behind iShares Core MSCI and SPDR Gold Shares 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.