Correlation Between Sprott Physical and SPDR Gold

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

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

Diversification Opportunities for Sprott Physical and SPDR Gold

0.98

Correlation Coefficient

Sprott Physical  SPDR Gold

Almost no diversification

The 3 months correlation between Sprott and SPDR is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and SPDR Gold MiniShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold MiniShares and Sprott Physical 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 Sprott Physical Gold 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 MiniShares has no effect on the direction of Sprott Physical i.e., Sprott Physical and SPDR Gold go up and down completely randomly.

Pair Corralation between Sprott Physical and SPDR Gold

Given the investment horizon of 90 days Sprott Physical Gold is expected to generate 1.06 times more return on investment than SPDR Gold. However, Sprott Physical is 1.06 times more volatile than SPDR Gold MiniShares. It trades about -0.02 of its potential returns per unit of risk. SPDR Gold MiniShares is currently generating about -0.03 per unit of risk. If you would invest  2,018  in Sprott Physical Gold on September 24, 2024 and sell it today you would lose (10.00) from holding Sprott Physical Gold or give up 0.5% of portfolio value over 90 days.

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

Sprott Physical Gold  vs.  SPDR Gold MiniShares

Sprott Physical Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sprott Physical Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sprott Physical is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR Gold MiniShares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Gold MiniShares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, SPDR Gold is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Sprott Physical and SPDR Gold

The main advantage of trading using opposite Sprott Physical and SPDR Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sprott Physical 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 Sprott Physical Gold and SPDR Gold MiniShares 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.