Correlation Between Global Resources and Gold

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

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

Diversification Opportunities for Global Resources and Gold

0.09

Correlation Coefficient

Global Resources  Gold

Significant diversification

The 3 months correlation between Global and Gold is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Global Resources Fund and Gold And Precious in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold And Precious and Global Resources 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 Global Resources Fund are associated (or correlated) with 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 And Precious has no effect on the direction of Global Resources i.e., Global Resources and Gold go up and down completely randomly.

Pair Corralation between Global Resources and Gold

Assuming the 90 days horizon Global Resources Fund is expected to under-perform the Gold. But the mutual fund apears to be less risky and, when comparing its historical volatility, Global Resources Fund is 1.49 times less risky than Gold. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Gold And Precious is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,244  in Gold And Precious on November 29, 2024 and sell it today you would earn a total of  80.00  from holding Gold And Precious or generate 6.43% return on investment over 90 days.

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

Global Resources Fund  vs.  Gold And Precious

Global Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Resources Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Gold And Precious

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gold And Precious are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gold may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Global Resources and Gold

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

The idea behind Global Resources Fund and Gold And 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.