Correlation Between Sprott Physical and IShares Gold

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

Diversification Opportunities for Sprott Physical and IShares Gold

0.98

Correlation Coefficient

Sprott Physical  IShares Gold

Almost no diversification

The 3 months correlation between Sprott and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Physical Gold and iShares Gold Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Gold Trust 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 IShares Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Gold Trust has no effect on the direction of Sprott Physical i.e., Sprott Physical and IShares Gold go up and down completely randomly.

Pair Corralation between Sprott Physical and IShares Gold

Given the investment horizon of 90 days Sprott Physical is expected to generate 1.02 times less return on investment than IShares Gold. In addition to that, Sprott Physical is 1.02 times more volatile than iShares Gold Trust. It trades about 0.08 of its total potential returns per unit of risk. iShares Gold Trust is currently generating about 0.08 per unit of volatility. If you would invest  1,831  in iShares Gold Trust on September 26, 2024 and sell it today you would earn a total of  779.00  from holding iShares Gold Trust or generate 42.55% return on investment over 90 days.

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

Sprott Physical Gold  vs.  iShares Gold Trust

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.

iShares Gold Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Gold Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares 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 IShares Gold

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

The idea behind Sprott Physical Gold and iShares Gold Trust 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.